VAT Overview

What is VAT?

Value Added Tax or VAT is a tax charged on most business-to-business and business-to-consumer transactions in the UK..

How VAT Works?

A business will pay VAT on its purchases, which is called "input tax", and charge VAT on its sales, which is called "output tax".

If a VAT-registered business charges more output tax on sales than it pays in input tax on purchases, it must pay the difference to HM Revenue & Customs (HMRC). If more input tax has been paid than output tax charged, HMRC will refund the difference.

Businesses registered for VAT usually account for VAT on a quarterly basis by filling in a VAT return and submitting it to HMRC. If you are normally in a repayment situation you would move to Monthly returns in order to ensure that cash is refunded as soon as possible.

If you are a non VAT registered business or organization, or a consumer, VAT is a tax on your consumption.

You must register for VAT if your turnover for the previous 12 months is over a specific limit – currently set at £67,000 – or if you think your turnover may soon go over the limit.

Standard VAT Accounting Scheme

Under standard VAT you pay VAT on any invoices you have issued and reclaim VAT on any invoices you have received.

There are other VAT schemes which may be suitable for the small business:

Cash Accounting VAT Scheme (click for more information)

Annual Accounting VAT Scheme (click for more information)

Find out more about VAT visit the HMRC website