What are the Basics of VAT that you must know as a business owner?
Value-added tax or VAT is a tax imposed by the government on sales of goods and services. All businesses with a greater yearly turnover of more than £83,000, which is the current VAT threshold, must register for VAT and accomplish a quarterly VAT return.
How VAT Works
The moment a business is registered for VAT, it must conduct three things. The first is to charge 20% VAT on the goods and services that are sold to clients and other businesses, pay 20% VAT on goods and services obtained from other business establishments, and must file a VAT return quarterly to HMRC. There must be a rough balance between the VAT a business charges and the VAT the business pays for. If there are any differences, these are sorted out through a VAT tax return. Either HMRC pays the amount it owes to the business or vice-versa.
Steps On Paying VAT to HMRC
1. Businesses must keep VAT records on all sales and purchases made.
2. Output tax is the VAT a business charges to customers or other businesses when these purchase products and services from the business concerned.
3. Input tax is the VAT other businesses charge a business in question when this business purchases goods or services.
4. A business accomplishes a VAT return every three months.
5. This demonstrates the net input tax and net output tax.
6. The business pays HMRC the net difference between the input tax and output tax. This is equivalent to the VAT that a business has charged its clients minus the total VAT a business has been charged.
7. HMRC will reimburse a business if the input tax is greater than the output tax. This means that the business gave more VAT than having obtained from sales.
8. Businesses can do it online or accomplish a paper return.
9. The due date for payment of VAT is the same date as the VAT return due date. If a business opts to pay online, then this business can have seven additional calendar days.
10. A business must pay online if it fills out a return outline.
11. If a business has a turnover of more than £100,000 or if the business is newly registered, business has to fill out the return and pay online.
Businesses need to learn the basics of VAT. If you need expert services, you can contact us for assistance.