At Lee Coombes Accountancy, our tax advisor services are designed to give our clients in Swansea every opportunity to reinvest in their businesses, and invest in the future. Utilising a professional tax advisor ensures that you will be paying the correct amount of tax and that your documentation is accurate and on time, removing the stress and hassle involved in compiling and submitting your VAT return information.
If you are looking for advice on completing a tax return, you can read our full guide on how to complete a tax return here. In this blog, we will explore the buzzwords and terms surrounding VAT and help you understand what they mean.
What is VAT?
VAT stands for Value Added Tax, and is a form of tax charged on the purchase of goods and services in the UK. The charge is a percentage of the cost you pay for these goods and services, designed to be paid by the end consumer.
It differs between varying countries and governments, and can apply to goods purchased from abroad and vice versa.
How much is VAT?
The VAT figure typically depends on the nature of the goods or services it is being paid on, but in the UK, there are 3 rates:
- Standard rate: The majority of goods or services attract the standard rate, which is 20% of the purchase price.
- Reduced rate: Certain goods and services qualify for the reduced rate of 5%. These include items relating to health, energy, heating, and some protective items or services.
- Zero-rated: Some items or services involving health, food, children’s clothing, and publishing, qualify for the zero rate
There is also a full breakdown of essential information about VAT on the UK Government website, which you can access by clicking here.
This does not always constitute to a financial or tax year, it is the rolling 12-month period leading up to this point in time. If you are near the threshold you need to keep a careful eye on your figures, and if you go over the threshold in any 12-month period, you must register for VAT.
Deregistration refers to the cancelling of your VAT registration. This would be done if the business is no longer eligible to pay VAT or if it stops trading altogether. The deregistration process must be done within 30 days of becoming ineligible or you may attract HMRC penalties.
Disbursements are things that a business spends money on that can be recharged to the customer. These differ slightly to expenses and this has an implication for VAT.
Domestic reverse charge
In some cases, it is actually the customer’s responsibility, rather than the supplier, to account for VAT and this is known as the domestic reverse charge. A full list of the services and goods that require a domestic reverse charge can be found here.
Effective date of registration
This refers to the date that the business went over the registration threshold or requested voluntary registration.
Exempt goods and services
As the keyword suggests, these are goods and services that VAT cannot be charged on. For example, things like insurance, stamps and health service. The UK Government have a full list of VAT exempt goods and services here.
A registration threshold is the taxable turnover figure that makes your business liable for compulsory VAT registration. The threshold is currently set at £85,000, and typically increases on 1 April each year.
Your VAT number is a unique reference number which identifies your registration with HMRC. This needs to be included on every invoice.
VAT taxable turnover is the total value of your sales that aren’t VAT exempt, including:
- Goods you hire or loan to customers
- Business goods that you use for personal reasons
- Gifts or part-exchanged goods
- Services from abroad that needed to receive a ‘reverse charge’
- Building work totaling over £100,000 which your business did for itself
- Zero-rated items
Zero-rated refers to the goods that are still VAT-taxable but the rate of charged is 0%. These items still need to be recorded within your VAT accounts and reported to HMRC.
How we can help
We can support many aspects of tax advice, including income tax, capital gains tax, inheritance tax as well as tax planning and other areas of personal tax. Within our accountancy services offering, we can also aid with quarterly returns and corporation tax returns.
For more information call us on 01792 346272 or contact our team here.