Vital VAT information
25-09-2008
What is VAT?
Value Added Tax (VAT) is a tax implemented by the government in application to the vast majority of businesses when transactions involving the transfer of goods and services are passed through the business.
As your businesses turnover exceeds beyond a certain level, you must VAT register your business. Once you are registered, you must therefore pay HM Revenue & Customs (HMRC) the VAT equivalent on anything you buy or sell throughout the duration of trade.
Even if your turnover does not reach the required threshold for businesses to register for VAT, you can consider applying voluntarily.
How does it work?
Businesses pay tax on its purchases known as "input tax" whilst charging VAT on receiving sales called "output tax". If a VAT registered business takes more output tax than paying input tax, the difference must be paid to HM Revenue & Customs (HMRC). Vice versa and HMRC will refund the difference.
Sales and purchases
If you register for VAT you will need to incorporate slight adjustments to the every daily running of the company.
For your sales:
- Starting from exact date your VAT registration confirms you will need to issue VAT invoices.
- You must keep an up to date record of the amount of VAT you charge in your records. This is your output tax.
For your purchases:
- You must have received a VAT invoice for all your purchases to be able to reclaim any VAT paid.
- You must also keep an up to date record of the amount of VAT you have paid in a separate column in your records. This is your input tax.
Prior to printing your invoices, ensure you check all the necessary VAT information is displayed clearly.
