Navigating the intricacies of UK VAT can be a daunting task, especially for overseas companies. Understanding the fundamentals and requirements is essential to ensure compliance and optimise financial operations.
What is UK VAT?
Value Added Tax (VAT) is a charge applied to most goods and services purchased in the UK, similar to the Goods and Services Tax (GST) in other countries, though with notable differences. VAT-registered businesses in the UK charge VAT on their sales and can reclaim the VAT they pay on business-related purchases. However, non-VAT-registered businesses and consumers cannot reclaim VAT, making it effectively a “sales tax” for consumers.
In the UK, there are three primary rates of VAT along with an exemption rate:
– 20% Standard Rate VAT
– 5% Reduced Rate VA
– 0% Zero Rate VAT
– Exempt VAT (no rate and does not carry any VAT charge)
We will focus on the standard rate of VAT, with additional guidance available for those needing support on reduced and zero-rated VAT. Please reach out for specific information.
VAT Reporting and Payment Schedule
VAT is typically reported and paid on a quarterly basis. Here are the common VAT periods:
– January/February/March
– April/May/June
– July/August/September
– October/November/December
It’s possible to request a change in VAT periods from HMRC, often to align with your company’s financial year-end or accounting reference date.
When Must I Register for VAT?
The UK VAT registration threshold is set at £85,000, based on a 12-month rolling period, not just the fiscal year (April 6th to April 5th). If your taxable sales exceed this threshold over any 12-month period, you must register for VAT. This threshold has been unchanged since April 1, 2017.
Compulsory immediate registration is required for overseas registered business, the turnover test is not applicable to these business types.
Voluntary registration is also an option, potentially offering cash flow benefits and enhancing your company’s perceived credibility. However, there are downsides, such as the need to prepare VAT returns quarterly, which can add to business costs. Additionally, being VAT registered can make your services more expensive to non-VAT registered customers, impacting competitiveness. Nonetheless, in business-to-business transactions, it is generally expected that customers are VAT registered.
Understanding VAT Taxable Turnover
Your VAT taxable turnover includes only the goods and services you sell that are subject to VAT, including those at zero rates. It excludes sales that are exempt or outside the scope of VAT.
Claiming Pre-registration Costs
Interestingly, you can claim back VAT on items of equipment or stock purchased for the business up to four years prior to registration, provided they are still in use and on the balance sheet. For services, the claim back period is six months.
How to Report VAT
All VAT submissions are made via HMRC approved software. Payment is due by the 7th , 5 weeks after the end of the quarter end at the time of submission. Filing online ahead of the deadline ensures any refunds are processed promptly, either by cheque or bank transfer, depending on your preference.
How We Can Help
Determining whether you need to register for VAT is the first step. If required, we assist with completing the VAT registration form, tailored to whether you’re a UK Ltd company or an overseas entity, as the data gathering process varies slightly.
Once registered, we help set up processes to integrate VAT reporting into your accounting procedures. We can also assist with online reporting, giving you more control over payments and ensuring direct debits are correctly set up with HMRC.
Typically, we try to file within your business accounting software, so the VAT position is clear during the VAT quarter. We will review the information and ensure it meets the filing requirements.
For companies that are not using VAT compliant software, we offer an alternative submission process where the information is submitted electronically using our in-house systems.
For more tailored assistance or to arrange a FREE 30-minute consultation with a VAT accountant, please get in touch.