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What Does VAT Mean for My Business?

By March 20, 2017Blogs

Discover the advantages that VAT brings for small businesses all over the UK and get to know the ins and outs of value added tax.

VAT is one of the most important accounting factors your business can go through. Standing for value added tax, you need to know what VAT entails and how to make your business benefit from the process before moving forward in the business world.

What Is VAT?

Value added tax is the tax applied to what a business buys. Whether that be supplies or general business purchases, the tax is another element set in place by Her Majesty’s Revenue and Customs.

A common question amongst small to medium business owners working with us, is how to register for VAT and what the actual threshold stands at, something Coleman and Co can answer only too well. Items that VAT cover include:

  • Business selling supplies
  • Renting or hiring of business goods
  • Business stock used for private purposes
  • Exempt from VAT are magazines, newspapers, groceries and children’s clothing

VAT data is collected by the HMRC every three months and is collated together on how much VAT you have paid and the amount of VAT you have charged.

How Does VAT Work?

The threshold for VAT in UK business is earning more than £83,000 a year (or 12-month period) or going over that amount in a single 30-day period. If you reach this threshold and fail to comply with the legislation, you have 30 days to register or you will face consequences in the form of fines.

When your business is VAT registered, you can charge VAT on goods and services your business deals with and you are also liable to reclaim VAT on the goods/services you purchase from another business or supplier. As a highly important part of any business, VAT often goes undiscussed amongst business owners, something Coleman and Co are trying to eradicate!

VAT is charged on business sales, hiring or loaning of goods, items sold to staff, commission rates and non-sales items like gifts. Find an example of VAT in action here with Investopedia.

Voluntary Registration Advantages

As VAT registration is compulsory for those above the threshold, you may be asking what voluntary registration entails. Although it is required by certain businesses, those under the threshold can volunteer to follow VAT practices at their business with many benefits in tow. Those advantages include:

  • Avoiding penalties and in keeping with legislation
  • Boosting your company’s profile and reputation
  • Making business dealings easier
  • VAT refunds possibilities
  • Getting a VAT registration number accredited

The biggest benefit of registering for VAT without needing to is the image your business represents. If you don’t qualify for the threshold and don’t volunteer for VAT, you are advertising your business as not turning over £83,000 a year, something many clients may question and brand as not a credible business to work with.

Whether you are wanting to represent yourself as a big, established company or a small up and coming business, you need to look as credible as possible to your potential customers.

How Your Business Works with VAT

Now you know how VAT works and what it means to your business, it is important to understand how your business will work with VAT in general practice.

Coleman and Co take care of all VAT returns, recording and accounting so that you don’t have to worry about it. As we have worked in the industry for many years now, we are able to apply our knowledge to any business account and keep your accounts moving forward like they should.

Acting with VAT at your business means recording certain documents for our accountants such as:

  • Records of all supplies you both make and receive
  • A VAT summary for each tax period (every three months)
  • All business transactions, bank statements, bills, receipts, cheques
  • (keep all documents separate from personal finances)

Moral of the story – registering for VAT can actually save your business money in the long run and also keeps your business operating legally in line with the HMRC.

Get in Touch

To find out more about VAT within your business, call us on 028 9266 3599. We also provide various other accounting services to keep your business ticking over and heading towards financial success in no time, so take a look at what we have on offer!

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