How UK VAT works

Value Added Tax (VAT) is a pivotal aspect of financial operations for businesses across the UK. Whether you’re a seasoned entrepreneur or a small business, grasping the fundamentals of VAT and navigating its complexities is crucial.

VAT is a consumption tax levied on goods and services provided by VAT-registered businesses in the UK. Essentially, it is a tax on the value that is added at each stage of the production and distribution chain. The current standard VAT rate in the UK is 20%, although some goods and services are subject to a reduced rate of 5% or are zero-rated.

Find out how to work out VAT (UK-specific).

How VAT returns work

UK businesses registered for VAT are required to submit regular VAT returns to the HMRC. A VAT return summarises the sales and purchases your business has made during the VAT period, typically quarterly. Key steps in the VAT return process include:

1. Recording sales and purchases: maintain accurate records of all sales and purchases made during the VAT period, ensuring VAT is correctly accounted for.
2. Calculating VAT owed: deduct any VAT you’ve paid on business purchases (input tax) from the VAT you’ve charged on sales (output tax). The difference is what you owe HMRC.
3. Submitting VAT Returns: submit your VAT return online to HMRC, along with any payment due, by the deadline specified on your VAT registration certificate.
4. Accounting for special VAT schemes: Depending on your business size and nature, you might qualify for special VAT schemes like the flat rate scheme or annual accounting Scheme, which simplify VAT reporting.

VAT schemes in UK

• • Standard VAT scheme: submitted every quarter. Then pay any VAT due to HMRC or reclaim any VAT owed to them.
  • Flat rate VAT scheme: for turnover of less than £150,000 (excluding VAT). Pay a fixed percentage of the turnover as VAT without requiring to track VAT on individual purchases.
  • Annual accounting scheme: for annual taxable turnover of £1.35 million or less. VAT payments are made in advance towards their VAT bill throughout the year and submit one annual VAT return.
  • Cash accounting scheme: for taxable turnover of £1.35 million or less. VAT is accounted for based on cash received and paid rather than invoices issued and received. Ideal for managing cash flow efficiently.
  • VAT margin scheme: businesses pay VAT on the difference (margin) between what they paid for an item and what they sold it for. Ideal for second-hand businesses.
  • Retail schemes: Retail businesses can choose from several schemes to simplify their VAT accounting. The schemes available include: apportionment scheme, direct calculation scheme and point of sale scheme

If you are unsure about finding the best VAT calculator or which VAT scheme is best for your business, Accrue Accounting can guide you! Ask your questions on WhatsApp!

The future outlook for VAT

Before the elections, the government increased the VAT registration threshold to £90,000 (if your revenues are less than £90K, you don’t need to register). Recent governmental statements indicate stability in VAT rates for the foreseeable future, with no increases expected beyond current levels. Notably, from January 2025, VAT will apply to private school fees, aligning with government policy changes. Please check the Gov site which provides some useful webinars here.

Our VAT calculator (UK businesses)

Calculate the VAT paid or payable effortlessly with our VAT calculator. This tool is specifically designed to help you determine the amount of VAT you owe or can reclaim on your transactions. Whether you’re managing business expenses or personal purchases, the VAT calculator provides quick and accurate results, making your financial planning simpler and more efficient.
Please check our financial calculator including the online VAT calculator here.

Our other accounting calculators are useful aids, guiding you through financial and business considerations at your leisure. While they’re not a replacement for detailed discussions and comprehensive calculations with our team, they offer clarity and perspective. These tools streamline your decision-making process, helping you estimate stamp duty costs on a property purchase and understand potential VAT reclaim on business expenses, saving you both time and effort.

Why Choose Accrue Accounting?

Accrue Accounting specialises in assisting businesses with VAT compliance and offers comprehensive support in dealing with HMRC. Here’s why you should consider appointing us as your VAT agent:

• Expertise and efficiency: Well-versed in VAT regulations, we will ensure that your VAT returns are accurate and submitted on time, reducing the risk of penalties.
• Tailored advice: We provide tailored advice based on your business needs, helping you navigate VAT complexities and optimise your VAT position.
• Time-saving and peace of mind: by appointing us as your VAT agent, you can focus on your core business activities while we handle your VAT compliance professionally.

 

Still unsure of how to work out VAT? Get in Touch

Accrue Accounting helps your business thrive through efficient VAT management and expert financial advice. Whether you’re seeking clarity on VAT obligations or looking to optimise your tax strategy, we’re here to assist you.

 

Contact us:

Have specific questions or need personalised advice? Don’t hesitate to call 01202 051410 or email enquiries@accrueaccounting.co.uk today to discuss how we can support your business needs.