Value-added tax (VAT), also known as “the devil’s tax” is the one that people often compare to the taxes onerous imposed by the likes of the IRS or the Vatican. VAT is the tax that you have to pay when you purchase certain goods or services in the United Kingdom. If you’re a private company, you might need to register for, and obtain VAT for your business. You can do this at the British Retail Consortium, a trade body that represents all UK retailers, as well as many other businesses, both large and small.
So, What is VAT?
You may have heard of many others such as the Excise and Customs, or the HIDTA. But for the sake of this article, we will stick with VAT, as it is often the most common taxation you will encounter. Many people may simply call it the “rate” or “tax”. For many businesses, however, VAT is anything but simple.
Things You Should Know about VAT
One of the first things you should know about VAT is that it is different from sales tax. This means you have two rates: the standard rate, which you have to pay for all purchases and sales in the UK; and one called the surcharge period, which you have to pay if you make any purchases or sales during the surcharge period. The standard rate is determined by a formula based on income. When you make any purchases or sales in the UK, you have to pay the standard rate. On the other hand, the surcharge period is different – you only pay the surcharge period if you make any sales or purchases in that period.
Work With a Professional Tax Accountant
Because it is so complicated, it is recommended that you work with a professional tax accountant who can explain the ins and outs of VAT to you in layman’s terms. When VAT is included in your annual return, you will need to enter that amount on line by line. In doing so, you will need to understand the basic tax rules and exceptions. If you make any mistakes, your account will be rejected and you will be liable to penalty. For this reason, it is vitally important that you get every aspect of your return prepared by a qualified accountant who will also prepare your VAT tax return if you so choose. There are several accountants who will work exclusively with businesses and individuals who need VAT compliant tax returns.
Before You Start Preparing Your VAT Reports
It is important that you understand what they are and what they include. Your accountant can help you understand the basics of VAT and how it applies to your business and how you should treat it when you submit your annual reports. For instance, he or she can explain whether certain purchases are exempt from VAT, for example; and if they are not, how your accounting period and purchases and sales are aggregated for purposes of calculating your vat.
Expert Advice
Your VAT accountant will give you expert advice as to which items in your business that are eligible for special treatment and which must be declared separately, depending on your business and industry. He or she will also tell you which imports are allowable and which are not. This is a complex area of taxation and accounting and you will definitely need an expert on the subject. You may not be aware of all the intricacies involved. Therefore, it is imperative that you have a qualified vat accountant who can guide you through the process.
VAT Is an Integral Part of UK Tax Law
VAT is an integral part of UK tax law and must be paid at the appropriate time. This is known as the stamp duty and can be calculated as a percentage of the retail sale price of the item or as a fixed amount. Many people believe that the rate of VAT that they pay on their shopping is simply this amount plus their profit margin, however, they are wrong! The rate of VAT is determined by a complex set of rules which take into account the purchasing cost, volume and location of the sale. An experienced vat tax specialist can assist you fully with the assessment of your tax liabilities.
Conclusion
Some of the common components of VAT that you will have to pay are Corporation tax, Value Added Tax and Excise tax. The majority of businesses will be able to make arrangements with their chosen VAT expert free of charge to ensure that they pay no more than they need to. In order to calculate their taxable income a company must consider all the different rates of VAT that are applicable in the UK. A great way of ensuring that you pay the minimal amount of VAT is to have an expert assess your business along with your daily expenses to ensure that you do not exceed your tax obligations. A fantastic company will be able to work with you from the initial assessment to the final settlement, in order to guarantee that you pay no VAT over the agreed period.
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