Register and Manage Your VAT with Xact+ Accountants
Frequently Asked Questions:
VAT is a tax applied at each stage of the production and distribution chain, ultimately borne by the end consumer. Businesses add VAT to the price of goods and services they sell (output tax) and can reclaim VAT paid on their purchases (input tax). The difference between output tax and input tax is paid to HM Revenue & Customs (HMRC).
The UK has three VAT rates:
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Standard Rate (20%): Applies to most goods and services.
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Reduced Rate (5%): Applies to specific items like domestic fuel and power.
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Zero Rate (0%): Applies to essential goods such as most food items and children’s clothing.
VAT returns are typically submitted quarterly, summarizing the VAT charged and paid during the period. The deadline for submission and payment is usually one calendar month and seven days after the end of the accounting period. For example, for a period ending on 31 March, the deadline would be 7 May.
Making Tax Digital is a UK government initiative aimed at simplifying tax reporting. Since April 2019, most VAT-registered businesses are required to keep digital records and submit VAT returns using compatible software. This move is designed to make tax administration more effective and efficient.
Failing to register for VAT on time or submitting returns late can result in penalties and interest charges. The specific penalties depend on the nature and duration of the default. It’s essential to adhere to all VAT obligations to avoid such penalties.
A business must register for VAT if its taxable turnover exceeds £90,000 in a 12-month period. Voluntary registration is also possible for businesses below this threshold, which can be beneficial in certain circumstances.