VAT Advice
Value Added Tax was conceived as a simple tax. A flat rate of tax was to be added to all 'outputs' of a business, and paid over to the Commissioners of Customs and Excise. In fact, there are now three different rates of tax, and it is anything but a simple tax.
The principle is that a registered business adds VAT to its sales (the outputs tax). If it receives supplies of goods or services from another registered business, there will be VAT added to that price. This is its inputs tax. The business offsets its inputs tax against its outputs tax, and pays over the difference. Usually, a business will have more outputs tax that inputs tax, and therefore has to pay over the difference to Customs and Excise. Sometimes, however, the inputs tax will exceed the outputs tax, and the difference is refunded by Customs and Excise.
Registering for VAT
A business must register for VAT if its turnover for any twelve consecutive months is above the registration limit. This limit is announced each year in the budget. At the time of writing it is £58,000. When you are in business, therefore, you have an obligation to keep proper records of your turnover, whether you are VAT registered or not.
When you reach the limit, you have 30 days to notify the Customs and Excise. They will require you to complete a VAT registration form . You are registered from the beginning of the following month.
You may also register voluntarily. There are certain circumstances when this is advantageous to you - mainly when you have zero rated sales.
Deregistering from VAT
If you are registered for VAT, you may deregister if your turnover for any twelve consecutive months falls below the deregistration limit. This limit is announced each year in the budget, and is usually a couple of thousand pounds below the registration limit.
Filling in the VAT Returns
When you are registered, you must fill in returns. These normally cover three months, but if you normally receive a repayment, you may opt to have monthly returns. There is also the option to do 'annual accounting' for VAT, in which case the return is yearly.
The VAT return shows the outputs tax, the inputs tax, and the difference between them, being the amount you owe to Customs and Excise or the amount they owe you. The form also has boxes for other statistics. It must be sent to Customs and Excise within a month of the return date.
