What is VAT?
VAT stands for Value Added Tax, which is a tax on the value added to goods and services at each stage of production or distribution. VAT is applied at each step of the supply chain, from the manufacturer to the wholesaler to the retailer, and ultimately to the end consumer.
VAT is currently set at a standard rate of 20%, although there are also reduced rates of 5% and 0% that apply to certain goods and services, such as children’s car seats and food items, respectively.
When to register for VAT?
You must register for VAT if your business has a taxable turnover of over £85,000 for the last 12-months or you expect your turnover to exceed this threshold in the next 30 days.
However, if your turnover is below the threshold, you can still voluntarily register for VAT. This may be beneficial if you sell goods or services to other VAT-registered businesses, as they will be able to claim back the VAT you charge them on their own VAT returns. HMRC might charge you a penalty, depending on how much you owe and how late your registration is.
It’s important to note that once you register for VAT, you must charge VAT on all taxable goods and services you provide, and you’ll also be required to file VAT returns and keep accurate VAT records.
When are VAT returns due?
VAT returns are typically due every quarter, although some businesses may be required to file them on a monthly basis. The deadline for submitting your VAT return and paying any VAT owed to HMRC is one month and seven days after the end of the VAT return period.
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