VAT:Frequently Asked Questions

VAT is an indirect tax that is designed to be charged to consumers in general and unregistered vat businesses.VAT is a tax on goods and services and is levied at each stage of the supply chain.

Your business should register for vat if its sales (taxable vat supplies) hits the £8,5000 threshold in any 12-month period. 

 Yes, You can, But it does not suit all the businesses. Because when you register for VAT, You ll have to charge vat to all of your sales and it would be included in your price, however, you'll also be claiming the vat back on your vat purchases. 

 For Non-Vat registered businesses, it is part of an expense. For example, when you buy fuel for your business car for £120, you are paying a vat of £20 which is already included in the fuel price. However, when VAT Registered businesses buy fuel for £120, it claims back £20 or adjusted against the vat collected from clients in its quarterly vat return submitted to HMRC. 

You normally submit your vat return quarterly, however, some businesses may choose to annual vat returns submission if they meet certain criteria. 

 As HMRC has introduced digital record-keeping requirements for all vat registered businesses, you should keep digital receipts, invoices, and records through HMRC-compatible software.Wisei Accountants can help you comply with these requirements through our experienced team. 

 You need specialist advice from Wisei Accountants, so we can establish that you were actually required to register in the past and if yes then we can make you compliant with the help of HMRC compliance procedures, you may or may not have to pay the avoided vat to HMRC depending. 

 HMRC reserves the right to charge you a surcharge for outstanding vat bills from 2% to 15% and penalties from 30% to 100% of the avoided vat.  

VAT=OUTPUT TAX-INPUT TAX

The OUTPUT TAX is the same as the tax charged to the end consumer. INPUT TAX is the tax paid on the purchase. The difference between the two must be paid to the government.

There is a very simple formula for each VAT rate. For a 5% VAT rate, you multiply the price by 1.05, which is multiplied by 1.20 where VAT rate is 20% or keep the original price at 0% VAT rate.

 Yes, there are various vat schemes like Flat Rate VAT Scheme, Cash Accounting Scheme, Marginal VAT Calculations, Annual Accounting Scheme, and Retail VAT Scheme. These schemes may be used according to your business position to maximize your profits and tax position.  

Yes, there are various vat schemes like Flat Rate VAT Scheme, Cash Accounting Scheme, Marginal VAT Calculations, Annual Accounting Scheme, and Retail VAT Scheme. These schemes may be used according to your business position to maximize your profits and tax position.   

We would explore below schemes further.

· Flat Rate Scheme/Limited Cost Trader

· Annual Accounting Scheme

· Cash Accounting Scheme

· VAT Retail Scheme

· VAT Margin Scheme

· Capital Goods Scheme

· Reverse Charge VAT Scheme

The Fixed Rate Plan is designed to simplify your buying and selling records. This allows you to apply a fixed flat percentage to your total turnover to arrive at the VAT due. Fixed rate percentages vary by business type. To participate in the flat-rate VAT regime, your company must: be registered to VAT. Estimated annual turnover of less than £150,000 (excluding VAT).

Example:

· You charge your customer £1000 plus 20% VAT, for a total of £1200.

· You are a photographer, your company therefore benefits from a flat rate of 11% VAT.

Under the annual accounting regime, businesses are only allowed to file one VAT return per year instead of the normal four. Businesses prepay VAT from their VAT accounts based on their latest return. Businesses can join the scheme if they have an estimated VAT turnover of £1.35 million or less.

 In the cash basis scenario, the VAT (HMRC) transaction payment amount is the difference between its sales and purchase invoices. With the cash basis, you can pay VAT on sales when customers pay you. And refund the VAT on your purchases after paying the seller's cash accounting regime. You can pay in monthly or quarterly installments depending on your estimated annual VAT obligation. To join the scheme you must have a VAT turnover of £1.35 million or less. 

Invoice accounting, sometimes referred to as standard accounting, means you have to pay VAT to HMRC when you receive your invoice. Cash basis means you only pay VAT to HMRC when customers pay you.

 The Retail Sales scheme is a simplified method for calculating the value of taxable retail sales and determining what percentage of those sales are taxable at different VAT rates. 

According to regulations, you can only post retail sales using the retail scheme.If you mix retail and non-retail sales, you can use the retail plan to calculate tax due on retail sales only. You should account for non-retail sales using normal accounting methods.

Under this scheme, you calculate the purchase value for resale at different VAT rates and apply the ratio of these purchase values ​​to your sales.

If you acquired or created an expensive asset, or already owned one when you registered for VAT, you may need to adjust the amount of VAT you are claiming. You can do this by using the capital goods regime, which allows you to spread the VAT on your initial claim over several years.If your alimony ratio goes up, you can claim more, if it goes down, you have to repay some of it. Taxable supplies are regular, reduced or zero-rated sales you make.

Reverse Charge is the amount of VAT you will pay when purchasing the service in the UK.You must add this amount to the total amount of VAT you will pay to HMRC for the quarter and the amount of VAT you will claim for the quarter. This means you don't have to pay any additional fees to HMRC.

For example, you may have hired translators in Saudi Arabia to translate web pages for you. If you hire someone in the UK to do the work, the cost will be assessed at 20% VAT by default. If the service is worth £100, the reverse charge will be £20, or £100 x 20% .Or takes back all the extras from them 

Limited cost resellers are companies that must use a special percentage - 16.5%.HMRC said a limited cost trader is a business that only buys a small amount of goods.