Here’s an easy to follow VAT Guide For Beginners.
What is VAT? Value Added Tax, which is abbreviated to VAT, is a form of tax that is added to products and/or services to generate revenue for the government. It is paramount that VAT must be charged on all goods and services provided by VAT-registered firms.
VAT has a standard rate of 20%, which suggests that an additional 20% must be added to all sales. Moreover, all VAT-registered companies are entitled to a refund of any VAT they have been levied.
If a company’s annual sales surpass £85,000, then they must register for VAT, and this referred to as the “VAT taxable turnover”. It is essential that companies are aware of how VAT may affect them as they look to expand.
Continuing in this VAT guide for beginners, companies are able to voluntarily register for VAT, and this can be more appealing than it seems. For instance, for contractors who are self-employed and source work through an agency, then registering for VAT is a huge bonus. This is because if their outgoings are likely to be minimal, then they can take advantage of the flat rate VAT programme.
What is the VAT Flat Rate Scheme? Essentially, this scheme is a method of paying VAT in which a company pays a set percentage of its annual revenue.
One of the principle aims of the VAT Flat Rate Scheme is to make the process of filing a VAT return easier for small companies, and to also ensure that companies pay approximately the same amount of VAT as other VAT schemes without having to submit as much paperwork.
The companies on this scheme are able to keep the difference between the VAT paid to HMRC and the VAT paid by customers. Usually, most companies paying a flat rate cannot reclaim VAT on purchases, unlike with other VAT schemes where VAT can be reclaimed on purchases.
If you liked this blog post VAT Guide For Beginners, then make sure to check out our last one: 4 Businesses You Can Run From Home.
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