VAT
Value Added Tax (VAT) is a tax on the value that results from each exchange or financial transaction.
If you are in business and your taxable turnover, not just your profit, goes over the registration threshold you become a ‘taxable person'. You must then register for VAT. If you don't register at the correct time, you could be fined.
You must register for VAT if:
a) You are on Schedule "D" (are self-employed with less than 80% of your income coming from a single source) or operate as a limited company
And
b) At the end of any month the total value of the taxable supplies you have made in the past twelve months or less is more than the current threshold of £61,000.
Or
c) At any time you have reasonable grounds to expect that the value of your taxable supplies will be more than the current registration threshold of £61,000 - in the next thirty days alone.
To register for VAT you must complete Form VAT 1, which you must send to Revenue & Customs within 30 days of any of the above. Registration forms are available from your local VAT office or the HMRC website.
You may either complete this form yourself or ask your accountant to do it. You will then be given a VAT registration number, which you should include on all your future invoices. You must then add 17.5% VAT to your fees for all future work, eg:
Fee: | £1,000 |
VAT @17.5%: | £175 |
Invoice total: | £1,175 |
Your ongoing VAT responsibilities
Every three months you (or your accountant) must complete a VAT return showing the VAT you have invoiced, minus the VAT you have paid (for the hire or purchase of goods or equipment etc). The sum due to Customs & Excise must be paid within 30 days of the end of the VAT quarter.
There are heavy penalties for delaying or failing to register or make VAT returns. If you meet the criteria for VAT registration, you must register promptly and submit your VAT returns.
