Any conventional UK business that has a turnover in excess of £61000 per year will need to charge VAT on the sales of its products or services. This webpage looks briefly at the issue of VAT for small businesses.
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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:
For more information consult the HM Revenue & Customs website or phone their national helpline on 0845 010 9000.