HMRC and VAT

14 August 2017

Value Added Tax (VAT) Whenever we buy most goods goods and services VAT is applied at a rate of 20%. The idea that the more you spend the more you pay in taxes ie an indirect tax. Business have to charge VAT and if they are VAT registered then they can reclaim any VAT that they themselves have to pay. As such, it is not a great burden on business... unless you are not VAT registered. Then you cannot reclaim any VAT that you have paid. That said you can quote prices "inclusive" of VAT so you can undercut the competition. What is more it is less of an administrative burden on businesses. However, if your turnover is in excess of £82,000 then you have to register.  

There are various categories of products and services that do not attract VAT or have different rates.

Exempt supplies which include education/training, financial services, insurance products, and some medical services such as doctors and dentists.  There is no VAT charged on exempt supplies. 

Zero rated supplies: i.e. there is a zero rate as opposed to being completely exempt which applies to most food (but not restaurant or takeaway meals), prescriptions, children’s clothing, printed papers and house sales

Reduced rate: A 5% rate which is levied on domestic fuel and power.

Standard rate: Now 20% (as of 4/1/2011), and applied to all goods and services which are not covered by the other 3 categories

We are  finding that a number of companies come to us who have not registered for VAT when they should have done. The issues with this is that HMRC can claim back taxes and make an assessment of what you owe.  This is likely to put the business under pressure.  The same applies to whether you are sole trader or a company.  Many mistakenly believe that if they are not a company they do not have to charge VAT.  You still need to charge it

Again, like PAYE you can charge VAT but you must pay it over the HMRC quarterly. There is, therefore, a tendency for struggling companies to withhold VAT from HMRC and get into arrears.

Guides to what you can do if the business is struggling to pay VAT or other taxes:

  1. Accelerated Payment Notices
  2. Can't pay VAT, TAX or PAYE | Tax and HMRC problems
  3. I am having trouble paying VAT bill
  4. VAT Security Deposits for New Companies
  5. We cannot pay VAT what do we do?
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