VAT - a summary


A general overview of the principles of VAT.

We highlight the key VAT areas you need to consider when running your business. If you are starting or have recently started a business we, at AVASK, can help you comply with the VAT regulations.

VAT registered businesses act as unpaid tax collectors and are required to account both promptly and accurately for all the tax revenue collected by them.

The VAT system is policed by HMRC with heavy penalties for breaches of the legislation. Ignorance is not an acceptable excuse for not complying with the rules.

We highlight below some of the areas that you need to consider.

It is however important for you to seek specific professional advice appropriate to your circumstances.

What is VAT?

Scope

A transaction is within the scope of VAT if:

  • there is a supply of goods or services;
  • it was made in the UK;
  • it was made by a taxable person;
  • it was made in the course or furtherance of business.
Inputs and outputs

Businesses charge VAT on their sales. This is known as output VAT and the sales are referred to as outputs. Similarly VAT is charged on most goods and services purchased by the business. This is known as input VAT.

The output VAT is being collected from the customer by the business on behalf of HMRC and must be regularly paid over to them.

However the input VAT suffered on the goods and services purchased can be deducted from the amount of output tax owed. Please note that certain categories of input tax can never be reclaimed, such as that in respect of third party UK business entertainment and for most business cars.

Points to consider:


Making Tax Digital for Business: VAT

Under Making Tax Digital for VAT (MTDfV), businesses with a turnover above the VAT threshold must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software.

The rules have effect from 1 April 2019, where a taxpayer has a ‘prescribed accounting period’ which begins on that date, and otherwise from the first day of a taxpayer’s first prescribed accounting period beginning after 1 April 2019. The exception to this is a small minority of VAT-registered businesses with more complex requirements who are mandated to comply with MTD for VAT from 1 October 2019.

The-six month deferral applied to businesses who fall into one of the following categories: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (government departments, NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users. HMRC estimates that the deferral applies to around 3.5% of mandated businesses.

Keeping digital records and making quarterly updates will not be mandatory for taxes other than VAT before April 2020, although businesses below the VAT threshold which have voluntarily registered for VAT can opt to join the scheme.

There are some exemptions from MTDfV. However, the exemption categories are tightly-drawn and are unlikely to be applicable to most VAT registered businesses.

How we can help:

Ensuring that you comply with all the VAT regulations is essential. We can assist you in a number of ways including the following:

  • tailoring your accounting systems to bring together the VAT information accurately and quickly;
  • ensuring that your business is VAT efficient and that adequate finance is available to meet your VAT liability on time;
  • providing assistance with the completion of VAT returns;
  • negotiating with HMRC if disagreements arise and in reaching settlements;
  • advising as to whether any of the available schemes may be appropriate for you;
  • helping you comply with the MTD for VAT regime.

If you are starting, or have recently started a business, and you would like to discuss any of the points mentioned in this VAT summary please contact us.

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