VAT – The Facts
For many small businesses, the challenge of running and profiting from an enterprise is a difficult one, and many struggle with this already imposing task without the introduction of complications such as VAT. But for those who are interested, there are a few questions. What is VAT, and do I, as a businessperson, apply for it?
What precisely is VAT?
‘VAT’ is an acronym for Value Added Tax, which is a consumption tax that was created in the UK in the year of 1973, and exists as a government revenue, and provides the third largest source of income in the country. Since 2011, the standard rate for VAT has been 20% of the price of the goods or service bought. It has been called an ‘indirect tax’, because the amount of money charged that is actual VAT is paid to the government by the vendor of the goods and services, as opposed to the customer purchasing the commodity.
So do I need to apply for VAT?
For you to reach a point where you’ll need to apply for VAT, there are certain criteria that must first be met. Firstly, it’s important to consider that if the annual earnings of your business are more than £85,000, then you are legally required to charge VAT and must apply for it. You are allowed to register for VAT at any stage in time, but it’s worth considering that a sudden increase in prices may well upset and dissuade customers, who may feel inclined to seek out other vendors.
How do I register?
Registering for VAT is a process that, like many other legal requirements, involves filling out paperwork. The form required to apply for VAT can be found directly on the government website and requires basic information such as the name of the business applying, contact information, and other various details about the business itself. Once the application has been processed and approve, you’ll be sent a pack which contains a certificate confirming you have applied for VAT, as well as the unique number which is used with all processes pertaining to your VAT from that point on. Before you sign up for VAT, see the advantages and disadvantages of registration.
How does VAT affect my business?
Once you’ve been approved for VAT and have the certificate to prove it, you’ll then have to, by law, charge your customers new rates which incorporate the VAT. You can claim back certain parts of the VAT as part of your expenses, but it’s dependant on circumstances and other factors.
Overall, VAT may seem complicated, but it can be easy to understand and a valuable addition to any business. Being able to reclaim certain amounts of money as part of VAT will be welcome to many organisations. Application for VAT isn’t difficult, the forms are easily available and not crammed full of legal jargon. If you’re a growing business with a stable customer base, and you’re looking to expand past the £85,000 mark and become a big player in your industry, it’s worth knowing the facts.