VAT
Value Added Tax is the amount of tax added to the value of services or goods you buy. VAT-registered businesses must charge VAT for any products or services that are sold. The standard rate of VAT is 20%, meaning that 20% of the price of the product/service is added on top, which goes directly to the government. However, not all products and services will have VAT. For example, educational services and books are exempt or zero rated, with some goods being sold with a lower rate of 5% VAT.
If your sales exceed £82,000 per year then you must register for VAT. However, there is still good reason to register for VAT if your sales don’t exceed that amount as it improves credibility, giving the impression that your business has been operating longer than it has. Registering for VAT also offers the opportunity to take advantage of the Flat Rate Scheme, whereby your business pays a fixed rate of VAT on your gross turnover, as opposed to on each product/service sold. The fixed rate varies from industry to industry, with some industries paying 14.5% VAT to HMRC. Your business will still charge 20% on products/services, however the amount you pay to HMRC is the amount set by them. Since you are then able to keep the difference, it is a viable option for businesses with low expenditure.
If you can’t claim back VAT, then it is evidently not worth registering for VAT. Give us a call today on 01392 875391 to get advice on VAT, what it means for your business and whether you should register.