VAT

To charge right amount of VAT, you need to be aware of 3 different rates:

Standard rate – most of the goods and services provided are at standard rate, which is 20% in the United Kingdom.

Reduced rate – there are some goods and services on which you are charging/paying less VAT for example domestic fuel or power are charged at 5%. 

Zero rate – some goods are rated as 0% such as books, newspapers, children’s clothes and shoes. However, you still need to record them in your VAT records.

List of goods and services at charged rate is available on HMRC website.

 Standard – this is the most popular scheme! The submissions are made quarterly. The difference between output and input of Vat is paid to HMRC or refunded to you. The payment is made 5 weeks after the end of the quarter

Flat – you pay fixed rate of VAT to HMRC. This scheme works on calculation a percentage of your gross turnover. There are different rates depending on the type of the business you are in. The rates can be viewed on HMRC website. To stay on the scheme, your turnover needs to under £150,000 in a 12 month period.

Annual – declaration of Vat is only once a year instead of four. Payments however are made monthly or quarterly. At the end of the year, VAT return needs to be submitted within two months following the end of the annual accounting year, together with any outstanding balance. If there was an overpayment, HMRC will refund you the excess.

Cash – this system is very popular with businesses which gross turnover is less than £1,35 million in 12 months period. Vat is calculated based only on the invoices and purchases that has already been paid for.