UK VAT – An Overview for overseas companies
What is UK VAT?
VAT is an amount charged on most goods and services that are purchased in the UK and equivalent in Europe. It is very similar to GST (Goods and Sales Tax), but not the same.
A business registered for VAT will charge it on to other business and consumers in the UK. The good thing is that VAT registered business are able to recharge the amount of VAT that has been charged to them. The negative is that non-vat registered business and consumers are not able to claim back the VAT. Effectively it is a “sale of goods” tax to consumers.
Currently in the UK, there are three rates of VAT and an exemption rate:
- Standard rate VAT – is the most common – at 20%
- Reduced rate VAT – mainly utilities – at 5%
- Zero rate VAT – being 0%
Exempt VAT – has no rate and does not carry any VAT charge and those that are outside the UK VAT system altogether.
This brief guide takes you through standard VAT. Further guidance is available for those requiring support on the Reduced and Zero-rated VAT. Please ask for specific information.
VAT is reported (and paid for) generally on a quarterly basis. The periods are:
- Jan/Feb/Mar, Apr/May/Jun, Jul/Aug/Sept, Oct/Nov/Dec
- Feb/Mar/April, May/June/July, Aug/Sept/Oct, Nov/Dec/Jan
- Mar/Apr/May, Jun/July/Aug, Sept/Oct/Nov, Dec/Jan/Feb
It is possible to ask HMRC for a change in the periods and the most common reason is to align with UK company year-end or your accounts reference date.
When must I register for VAT?
The UK threshold is set at £85,000 for 2018-2019. However, it is based on a 12-month rolling period so not just for the fiscal year 6th April 2018 to 5th April 2019. If it is likely that your sales of goods/services that would be applicable to UK VAT exceed £85,000 in a 12-month period looking back and forward, then you must register for UK VAT.
A business can register voluntarily for VAT which may give rise to a cash flow benefit, as well as giving perceived comfort to your customers. From a marketing perspective, by not being vat registered it may give the impression to prospective clients that you are a small business, and this may put them off from using your services as they may feel that you are too small and not able to fulfill their order due to lack of resources.
Of course, there are disadvantages of being vat registered in that you have to prepare vat returns on a quarterly basis or employ a bookkeeper or accountant to do it for you. This adds to the cost of doing business. Being UK VAT registered may make you more expensive to your non-vat registered customers and not as competitive. That said, unless you are a business to consumer operation, it would generally be expected your customer would be VAT registered. Of course, if you are over the threshold, you have to legally register.
Remember that your VAT taxable turnover includes only the goods and services you sell that you have to charge VAT on, even those that are zero-rated. It doesn’t include sales that are exempt or outside the scope of VAT.
What about pre-registration costs?
This is interesting. You can claim back VAT on any items of equipment or stock that was purchased for the business up to four years prior to the registration, provided that the items are still in existence and part of the balance sheet. For services, you can go back 6 months.
How do I report?
Most business report online either by their Government Gateway login, or through their accountant’s agent login. Payment needs to be made at the same time that the return is submitted. If a repayment is due, filing online and ahead of the deadline means the refund should arrive reasonably quickly either by cheque or bank transfer, depending on which option you have.
How can we help?
The first step is to establish if you need to be VAT registered and if it’s agreed you do, we can work with you to complete the VAT registration form. Depending on who is registering for VAT: a UK Ltd company, or an overseas company – the data gathering process will vary slightly.
Once the registration has come through, we can help set up processes to collect details relevant for the VAT return in your accounting procedures.
We can also set you up on line in order to do online reporting of your VAT return which gives you a bit more control over the reporting and payments going out, and also make sure the direct debit is set up on the system to allow HMRC to take the required payment. Money needs to be in the nominated bank for this to happen in order to stop rejections from the bank.
At the end of each quarter, we will request your information which we will need after the first few days of the month. This is usually sent to us electronically/or by a secure dropbox facility. The information we will need are:
- Copies of invoices sent to customers in the last three months;
- Business bank statements
- Business credit card bills
- Invoices and receipts received from suppliers
We will then create an excel file which will show the inputs & outputs for the return, and the figures which correspond to which boxes for the VAT return.
We usually act as VAT agent for our clients. If that is the case, we will get you to approve & and confirm the draft VAT return, file it online and let you know how much you need to pay – although you will know that from the draft.