VAT registered companies have by law to submit VAT returns which give full and accurate details of VAT payments by customers and VAT charged by suppliers. The VAT return will also show how much VAT is owed by a business, or the amount to be refunded.
As VAT experts, Perrys Accountants can guide you through VAT accounting, including how to select and use accounting software which is compliant with HMRC’s Making Tax Digital (MTD) initiative.
Who has to register for VAT?
Businesses including sole traders with an annual turnover of £85,000 or more have to register for VAT with HMRC. Businesses can register themselves online, or authorise their accountants to register on their behalf.
Returns are usually quarterly, but HMRC also gives businesses the option of registering for monthly and annual payments. You need to keep VAT records for at least six years.
Making Tax Digital for VAT
Since April 1st 2019, most VAT registered businesses earning over £85,000 have had to sign up for Making Tax Digital (MTD).
To carry out business under MTD you have to have compatible software. Gov.uk features a guide to approved software, and at Perrys we can help you through system choices which fit in best with your business and the way you operate.
From the date you register, you must:
- charge customers the correct amount of VAT
- record VAT you pay to suppliers
- submit VAT returns
- pay any VAT due to HMRC
- keep VAT records and a VAT account
Approved software can carry out your VAT calculations for you, submit your returns and keep records for as long as HMRC and your business require.
What is the VAT rate?
The standard rate is 20% and applies to a very broad range of products and services. The tax applies to business purchases as well as consumer goods.
There are VAT exemptions and zero-rating for a limited range of items including books, newspapers, children’s clothing, some foods and drinks, and goods exported from the UK. A 5% rate applies to certain products and services including domestic fuel and power, installation of energy saving materials and child car seats. At gov.uk you can see the full list of goods and services which attract non-standard VAT rates and also VAT exemptions.
VAT Recovery
Through your VAT return, you can reclaim the VAT paid on goods and services you have bought for your business. For items you use for you private as well as business, you can reclaim a proportion of the VAT, in line with how much private and business you make of the item. If, for example, you use your home broadband line 25% of the time for your home office, you can reclaim VAT on 25% of your broadband bill.
In most cases you will receive your refund within 10 days of submitting your return.
VAT and the Construction Industry
VAT for building work on new houses and flats is generally zero-rated. So builders, plumbers, plasterers and carpenters do not charge VAT when they are working on new homes and homes for the disabled. There is also a reduced rate of 5% applicable to work on energy saving installations, certain conversions, renovations and home improvements.
At Perrys, we work closely with clients in the construction sector and have extensive experience of tax returns under the CIS (Construction Industry Scheme). We can also provide expert advice on the domestic new reverse charge which is due to come into force for builders in October 2020.
