VAT - The Basics

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Are you a business owner or entrepreneur trying to navigate the complex world of taxes? Look no further – Accountant Karen Porter can simplify VAT for you. Here, she breaks down the basics of the tax – from its rates and thresholds to the advantages of registration and the process of getting started.

What is VAT?

VAT (Value Added Tax) is described by HMRC as a 'tax added to most products and services sold by VAT-registered businesses'.

It is a consumption tax and, as such, when your business registers for VAT, you or your business become liable to collect the VAT charged on your invoices / sales. The money collected is then paid over to HMRC at regular, usually quarterly, intervals. This money collected can be offset by certain allowable expenses.

What are the rates of VAT?

There are three common rates as follows:

20% standard rate - the most common rate, which applies to most good and services

5% reduced rate - applied to home energy, children's car seats, certain health products (sanitary products)

0% zero rated - Some foods, books and newspapers, medicines on prescription, construction of new housing

What is the VAT threshold for registration?

You must register for VAT if your turnover (sales/income) for the last 12 months was over £85,000 or you expect/forecast it to go over this figure in the next 30 days.

Certain small businesses (sales less than £150,000 per year) may choose to adopt the flat rate scheme. Under this scheme, the business pays a fixed percentage of its annual turnover. It is designed to help keep the VAT return process simplified.

It also should be noted that if you or your business are based outside the UK and you supply goods or services to the UK then, regardless of turnover, you should register for VAT.

Why should I voluntary register for VAT?

Sometimes it can be advantageous to register for VAT (regardless of turnover).

It can improve the image of the business as it can make a business seem bigger (turnover to register) and it helps with customer/client procurement as suppliers are sometimes required to be VAT registered.

You can reclaim VAT on goods and services acquired from other businesses.

If your customers are VAT registered, then they can reclaim the VAT from HMRC, meaning your business remains competitive.

How to register for VAT?

Your business will need to create a Government Gateway Account with user ID and a password to register for VAT. If you do not already have one, then you can create it when you sign in the first time. This will create a VAT online account.

Alternatively, if you prefer professional assistance, our team at Page Kirk can guide you through the process and help manage your VAT affairs. You can reach out to us at 0115 955 5500 or email us at for more information. This tax doesn't have to be a daunting concept. With the right knowledge and guidance, you can navigate the world of VAT and make informed decisions for your business.