Vat guide for small business

1. VAT GUIDE FOR SMALL BUSINESS OWNERS

2. Content Introduction Definition of VAT Who need to register for VAT VAT schemes Benefits of registration for VAT Accounting for VAT or VAT accounting

3. Introduction Are you an entrepreneur managing a small business and considering if you should register for VAT? This blog covers some essential information about UK VAT to get you started with your assessment to register or not.

4. What is VAT? Value Added Tax or VAT is an indirect tax that is applied to on purchase value of goods and services In some jurisdictions outside the UK, it is also referred to as Sales Tax or General Sales Tax (GST).  Value added tax

5. VAT registration threshold in the UK is a turnover of £85,000 of taxable supplies for a period of consecutive twelve months. So, if your business turnover in the last twelve months exceeds the VAT threshold, then you must register for VAT. Who Need to Register for VAT? Compulsory registration Voluntarily registration

6. CompulsoryRegistration • You can determine if you are required to register for VAT by assessing your turnover against the following two tests. If you pass either of the tests, you will need to register for VAT. • Historic test • Future test

7. Voluntarily registration You can voluntarily register for VAT even if your taxable turnover falls below the compulsory registration threshold. The definite benefit of registration is that you can claim back the VAT paid on purchases and expenses.

8. VAT Accounting Scheme 01 Cash accounting scheme 02 Flat rate accounting scheme 03 Annual accounting scheme

9. Cash Accounting Scheme You can only opt for this scheme if your taxable turnover (excluding VAT) for twelve months is not expected to exceed £1,350,000. You are required to leave this scheme if the value of taxable supplies exceeds £1,600,000. Under this scheme, you need to account for the VAT on the basis of cash received or paid.

10. Flat Rate Scheme You can join this scheme if you have an annual taxable turnover (excluding VAT) of up to £150,000. You need to leave the scheme if the total value of your VAT inclusive supplies in the year is more than £230,000. Under this scheme, you are required to calculate VAT by applying a fixed percentage (usually depends on the trade sector in which business falls) on your tax inclusive turnover.

11. Annual Accounting Scheme This option is available to organizations with a turnover below £1.35 million. Rather than making quarterly returns, this scheme gives you a chance to make advance installments towards your bill consistently You then file one VAT return and pay the balance or claim back a refund for any overpayments.

12. Following are the benefits of VAT registration. Benefits of Registration for VAT • VAT registration adds credibility to your business profile. Many businesses prefer to deal with companies registered with VAT • For importer or exporter it would be an added advantage for you as some countries give tax benefits for VAT Register Company.

13. Following are the benefits of VAT registration. Benefits of Registration for VAT • You can reclaim VAT on all goods or services your business buy or use once you get register for VAT. • You can also reclaim VAT from past, once you get registered for VAT you get eligible to claim input VAT on goods by going back 4 years from the date of registration and you still have that goods available in your business premises.

14. Accounting for VAT With VAT accounting we mean recording VAT on purchases and sales. VAT on purchases should be recorded from the purchase price. This VAT is recoverable if the business is VAT registered. VAT on sales should be recorded separately from sales price. This VAT is payable to tax authority if the business is VAT registered.

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