What is VAT and how does it work?
VAT is a tax charged on many goods and services by the government. From the day that you register your business for VAT, you’ll need to charge VAT on taxable sales.
What is VAT?
Value Added Tax or VAT as is commonly known is, in the simplest terms, the tax imposed by the UK government on the sales of goods and services. Any company registered under the High Majesty’s Revenue and Customs (HMRC) has to pay this tax to the government on a monthly or quarterly basis, the latter being the norm.
Who pays it and when?
Any company registered under HMRC pays a VAT on its goods purchased and sold once its annual turnover crosses £ 85,000. The company needs to charge VAT on goods sold from customers and pay VAT to the government on the goods bought. In an ideal scenario, the VAT charged must roughly be equal to the VAT paid by a company. However, the concept of VAT returns comes into play in case there is a substantial amount of difference in the two amounts.
What are VAT returns?
A company has to file for VAT returns every 3 months. VAT returns refer to the amount of difference that arises between the VAT charged and the VAT paid by the company. If the company pays more VAT than what it charges, then the difference is refunded by the government after filing for VAT returns. If it pays less than it charges, then the government recovers the remaining amount from the company. Thus, while filing for VAT returns, bookkeeping comes into action because that is the only means to keep track of the transactions of the last few months and those are the financials referred to whenever a company files for VAT returns.
How to file a VAT return?
Filling online VAT return is relatively simple. First, you’ll need a VAT number and a VAT online account. Then, you can simply submit your return using HMRC’s free online service.
Once registered for paying VAT, businessis assigned to a “VAT stagger group” which determines the months in which your payments are due. There are three stagger groups:
• Group 1- quarters ending in March, June, September, and December
• Group 2- quarters ending in January, April, July, and October
• Group 3- quarters ending in February, May, August and November
The Vat filing and payment need to be done before the 7th of every quarter month. Once you have your financial statements and all the paperwork in place, you have to file the VAT Return online on the HMRC website.
For more information about VAT, as well as some additional information about VAT registration and return services, you can get in touch with a VAT expert near you.