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Value Added Tax (VAT)
Value Added Tax (VAT)
is a tax that applies when a business is involved in the transfer of
goods or services. A business will pay VAT on purchases and charge VAT
on sales. If the amount a business pays in VAT is greater than the
amount it receives from sales it will be liable to pay the difference
to HM Revenue & Customs (HMRC). However, should the opposite be
the case then the business will be eligible for a refund equal to that
difference.
Whether or not you
need to register for VAT depends on your turnover for eligible
transactions. Currently the threshold is £61,000 for the
last 12 month period or an anticipated turnover of £61,000 in
the next 30 days.
There are some goods and services which are exempt.
If you do not meet the turnover limits you can still register on a
voluntary basis. This can add credibility to your business as well as
allow you to reclaim VAT you have to pay suppliers.
VAT registration
involves significant administrative responsibilities. You must issue
and receive VAT invoices, keep comprehensive records, complete a VAT
return and make any payments due on time. There is a facility to submit
returns online.
There are three rates
of VAT:
- 17.5% is the standard rate
- 5% is a reduced rate for certain goods and services
- 0% is applicable to some exempt goods and services.
For more information see the HM Revenue & Customs website at
http://www.hmrc.gov.uk/ or phone their
national helpline on 0845 010 9000.
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