VAT (Value Added Tax) is charged on the majority of goods and services that you both buy and sell as a business. VAT will be charged at different rates, depending on the specifics of what you’re selling – it’s important for all businesses to know if they need to be VAT registered.
Knowing VAT rates
VAT is generally charged at one of three rates. They are:
- Zero-rate at 0% – e.g. food and children’s clothes
- Reduced-rate at 5% – e.g. domestic power supplies
- Standard-rate at 20% – most goods and services
A VAT-registered business will add the VAT to the prices they charge, depending on the rate applicable. VAT is charged to both business and non-business customers.
Be aware though that there are certain goods and services that are exempt from VAT – it’s always best to reach out to your accountant if your unsure or you would like more information about what constitutes a VAT exemption. For example, dental services are not liable for VAT – nor are non-business activities, such as hobbies.
Do you need to be registered for VAT?
If your business is still fairly new or you have a reasonably low turnover, you don’t have to become VAT registered.
So, you don’t charge VAT on your goods and services – but remember you also can’t claim back VAT that you pay on goods and services either. You can register for VAT as early as you like, however it isn’t a necessity when your business is still in the formative stages.
When annual sales of taxable goods and services exceed £85,000 it’s no longer voluntary – you must register for VAT.
Being VAT registered means charging VAT on the products and services that you sell, however, you can also claim back VAT you pay on goods and services. So, VAT registration might be a cost-effective solution for many businesses, which is why some choose to register for VAT before it becomes a legal requirement.
Reaching out for help
Understanding VAT can be difficult, which is why it makes sense to reach out to a trusted accounting professional. They can help you understand VAT and how it affects your business in more detail.