Safe Business Services offer a number of services to help you keep on top of your company’s VAT responsibilities. Click below to find out more.
What is VAT?
VAT Registration
VAT efficiency
Flat Rate VAT and How to Register
What is VAT?
Value Added Tax or VAT is a tax that applies to most business transactions involving the transfer of goods or services.
Once your business turnover reaches a certain level, you will have to register for VAT. This means that whenever you buy or sell anything in the course of your business, you will have to charge VAT on your sales, keep proper VAT records on your incoming and outgoing transactions and pay VAT to HM Revenue & Customs (HMRC).
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VAT Registration
Value Added Tax (VAT) has to be charged on all goods and services by a company that is VAT registered. If your expected annual company turnover exceeds £61K you must be VAT registered, although companies with a lower turnover can still voluntarily register.
If your company is registered for VAT, you can claim back the VAT that other companies charge you; this includes the VAT on the fees SBS charges you as well as any company purchases you make.
Some services, for example most medical services, are VAT exempt, which means you can’t add VAT to your invoices. If you are supplying services to VAT exempt clients or think that the services that your company supplies may be classed as VAT exempt.
If you only make exempt supplies (i.e. medical supplies) you do not charge VAT but you cannot recover input tax charged to you. Consequently your prices must include an element to recover the VAT suffered which you cannot recover. There are also special rules for businesses which make both taxable and exempt supplies and are thus partially exempt.
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VAT Efficiency
Some financial institutions cannot register for VAT and therefore, where appropriate will want to avoid paying unnecessary output VAT.
If you intend to work for a financial institution, we recommend that you check with your recruitment consultant or their HR first that they will be happy to pay the VAT element on your invoices as in some cases it may be better for your company not to be VAT registered.
If you decide not the register or de-register your company for VAT you will not be able to take advantage of the benefits offered by the Flat Rate VAT scheme.
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Flat Rate VAT and How to Register
This program is available to VAT registered companies only.
Flat rate VAT (FRV) is operated by HMRC for the VAT returns of small companies and will generally prove to be financially beneficial.
As long as your company turnover is less than £150K, you can apply for the FRV program. This allows you to still charge 17.5% input VAT on your invoices but the amount you have to pay back to HMRC as output VAT will be at a lower percentage based on your professional sector.
As an example, if you are a social worker whose company is registered for FRV (social work FRV is 8.5% of turnover) and you invoice for £1000 plus £175 input VAT (@ 17.5%), you only have to pay to HMRC £99.88 of output VAT (8.5% of the total invoice).
However registering for FRV means you can no longer claim back any output VAT on your outgoing costs for items costing less than £2000.
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