Office based businesses and VAT
If your business is registered for VAT then the services and any goods you supply (your 'supplies') will be either taxable or exempt for VAT purposes.
If they are taxable, you must register for VAT once your sales have reached the current VAT threshold and you will have to charge VAT to your clients - this is known as 'output tax'. You will be able to reclaim any VAT you pay on purchases - this is known as 'input tax'.
There are two main rates of VAT:
- standard rate (currently 20%)
- zero rate
Some goods, such as fuel for domestic use, are subject to a reduced rate, currently 5%.
Every quarter you will pay HM Revenue & Customs (HMRC) the difference between:
- the output tax you have charged, and
- the input tax you have paid on your purchases
Nearly all businesses have to pay their VAT bill electronically - for example by direct debit or online banking. HMRC allows you some time at the end of each quarter before you have to pay the VAT due. So, for example, the VAT due on sales made in months one, two and three would be paid at the end of month four. Your VAT return will show your payment deadline date.
Businesses that are having trouble making their VAT payments, or are worried that future payments will cause them problems, can ask for help from the HMRC Business Payment Support Service. If your business needs this financial assistance to tide it over, HMRC will look at your situation and discuss temporary options that could help out. These could include letting you make payments over a longer period and waiving late payment surcharges. To discuss payment problems with HMRC you can call the Business Payment Support Service Helpline on 0300 200 3835.
Certain things, such as some financial and credit services, are exempt from VAT altogether. If all your supplies are exempt from VAT, you cannot register for VAT and you will not be able to reclaim the VAT on your purchases. If you make a mix of taxable and exempt supplies, in certain circumstances you will be able to reclaim the VAT on purchases relating to exempt supplies.
The position can be quite complex and you should consult the VAT Helpline on 0300 200 3700 if you need guidance. You can also download helpful free publications including VAT Notice 700/1 Should I be Registered for VAT? from the Gov.uk website.
Making Tax Digital (MTD) for VAT
Under HMRC's Making Tax Digital initiative, VAT-registered businesses with taxable turnover above the VAT threshold must keep records digitally and use special software to submit their VAT returns. You can find out more about MTD on the Gov.uk website.
Alternative flat rate scheme
You might be interested in an optional flat rate scheme (FRS) for eligible small businesses. Under this scheme you continue to issue tax invoices to VAT registered customers, but the VAT payable every quarter is calculated as a percentage of your VAT-inclusive turnover. You apply the appropriate flat rate percentage for your type of business. However, this scheme cannot be used with the retail schemes, the margin scheme for secondhand goods or the cash accounting scheme. You can find full details of the FRS, who can use it, and the flat rate percentages in VAT Notice 733, Flat rate scheme for small businesses. It will help you to decide whether or not the scheme is suitable for you.