Value Added Tax services
Written by Ray Coman
VAT is a tax on consumption. Most business with a turnover above the VAT registration threshold are required to be register. Many small businesses with a turnover below the registration threshold are also registered. The VAT calculations required for making the correct payment to HMRC can get complicated. However, it is the requirement of the business owner to collect VAT, report it correctly to HMRC using VAT compliant software and pay the correct amount on time. VAT Returns and payments need to be submitted to HMRC on a regular basis, usually every quarter. The penalties for late returns and payments can be high. Costs could be even higher where an error has been found in a VAT calculation, especially if following an HMRC VAT inspection. A business holds receipts to be paid over to HMRC and therefore becoming VAT registered requires extra management of cash flow.
Coman & Co are experienced in dealing with VAT and can assist with the administration burden. We can ensure help businesses to manage VAT and comply with the regulations. Our clients should not be paying more VAT than necessary.
VAT advice
We can advise in the following areas:
- The benefits and pitfalls of VAT registration and a suitable time to register.
- Government initiatives for small businesses, such as the flat rate scheme, annual accounting and cash accounting.
- Accounting for VAT, and suitable accounting systems or software for this purpose
- Cross-border transactions, both within and outside the EU.
- Services which are zero-rated or exempt from VAT, such as certain financial and insurance services.
- VAT on land transactions and the option to tax commercial premises.
- VAT related to disposing of a business.
VAT services
We provide related services to:
- Assist with VAT registration;
- Act as agent in dealing with HMRC;
- Prepare VAT Returns and calculation of tax liabilities; and
- Advise on a suitable response to an enquiry by HMRC.
Basic explanation of VAT
Value Added Tax, known as VAT, is a tax on the value that a trader adds. If a VAT registered business buys an item for £100 and sells it for £150, VAT is due to HMRC on the £50 mark up. The same principle applies to services, although service providers have wider margins. A wide margin means less volume is required to make the same profit. Consequently, service providers tend to recover less VAT than businesses selling goods. At the time of writing VAT in the UK is 20%. Most countries have a form of tax on consumption or sales tax.
VAT registration
Once the turnover has exceeded the VAT registration threshold for any twelve month period, a business is required to register for VAT. A business with income which is below the VAT registration threshold is not required to register for VAT. However, such a business can register for VAT voluntarily. The benefit of voluntary registration is that VAT can be recovered on purchases. A potential drawback is that the customers of the business will be charged VAT. VAT is an additional cost in a B2C (Business to Consumer) scenario. VAT is not a cost where a VAT registered Business is being charged. This is because a VAT registered business can recover VAT being charged. In a supply chain, the consumer bears the brunt of VAT. If there is no additional cost to being registered for VAT the only other consideration for the small business owner is the hassle of having to file VAT Returns. Oo the plus side, a registration:
- Allows for the recovery of VAT on outgoings
- Avoids penalties for late registration; and
- Camoflages a low turnover.
Net and gross of VAT
In VAT terminology gross is the larger amount. This is confusing because in other cases net means after tax. However, when gross is regarded as the larger amount, the terminology for VAT is consistent with other tax. The gross amount is calculated from the net amount through multiplying VAT exclusive value by 1.2. The net amount is derived from the gross amount through dividing the VAT inclusive amount by 1.2.
VAT on overseas supplies
Supplies of services outside the UK are outside the scope of VAT. The exception is B2C supplies of services to consumers within the EU. In that case, a VAT registered business will be required to charge VAT at the standard rate where applicable. E-commerce, Amazon and eBay vendors often import goods. UK VAT is usually added to the cost of the goods at the border. However, if the business registers for VAT, this VAT can be recovered on the VAT Return.
Exempt supplies
Some consultants do not need to consider registering for VAT. Most medical services, except for instance cosmetic surgery, are exempt from VAT. Certain insurance and education services are exempt.
Making Tax Digital
It is now a requirement for a VAT registered business to enrol in Making Tax Digital. The requirement is for transactions to be entered into compliant software and for the VAT Return to be filed electronically.