Understanding Value Added Tax

Aug 6 2008 By Suzanne McCreedy

REGISTERING your business for Value Added Tax (VAT) can be confusing, but help is at hand for entrepreneurs who log onto www.businesslink.gov.uk/northeast.

The Business Link website includes an online tool which guides you through registering for VAT and providing advice on how much you should be charging.

Before logging onto the tax section of the website, consider that all businesses which have supplied taxable goods and services exceeding £67,000 in the last 12 months, or anticipate doing so in the next 30 days, must register for VAT, which is paid on purchases and charged on sales.

Certain types of goods and services, including insurance and loans, are non-taxable. Businesses trading non-taxable goods and services are exempt and cannot register for VAT or claim it back on purchases.

However, those businesses with a turnover below the registration threshold can register voluntarily.

The advantages of registering include reclaiming VAT paid and even attracting new business - as some companies prefer dealing with registered businesses because they can reclaim VAT which has been charged.

Disadvantages include increased paperwork in the form of records and completing regular VAT returns with details of sales and purchases.

If you register, there are some changes you will need to make in the day-to-day running of your business, including issuing VAT invoices and keeping a record of the amount of VAT you charge and pay.

Businesses usually account for VAT on a quarterly basis. Upon registration you will be assigned a tax period and HM Revenue and Customs will automatically issue a VAT return.

Alternatively, businesses can submit returns via the HMRC website and arrange for an electronic payment. By enrolling for this service, you will receive an electronic reminder before a return is due. VAT returns are used to detail the amount payable and how is has been calculated.

A completed VAT return and the payment for the tax is normally due one month after the end of your tax period. Businesses may be eligible for extra time if they pay electronically. Most VAT registered businesses which use these methods will get up to seven extra calendar days from the normal due date to submit their VAT return and to make payment.

Business Link’s substantial team of expert brokers operates across the region in local access points and on a mobile basis. For further information about Business Link visit www.businesslink.gov.uk/northeast or call 0845 600 9 006.