EVERYTHING YOU NEED TO KNOW ABOUT VAT (PART 1)
- David Manklow
- Jan 13, 2022
- 2 min read
Updated: Mar 22, 2022
WHAT IS VAT?
It stands for Value Added Tax and is added onto prices in the UK.
HOW CAN VAT AFFECT MY BUSINESS?
You may need to add VAT to your prices
You will need to send that extra money to HMRC
You can claim back any VAT that you’re charged on business supplies
HOW MUCH IS VAT?
20% is the VAT rate for most goods and services
5% is applied to some health, energy, heating, and protective products and services
0% is applied to a range of products and services to do with health, building, publishing and kids’ clothing
VAT EXEMPTIONS AND OUT-OF-SCOPE SALES:
VAT does not apply to all products and services. Some things, such as insurance, antiques, arts, and educational training are exempt. Other things, like statutory fees, are out of scope (they sit outside the tax system). Being exempt or out of scope is different from charging 0% VAT.
HOW DOES VAT WORK?
The VAT on any item is designed to be paid by the consumer in the end, rather than by the businesses involved in its supply.
The simple principle behind VAT is consumers pay a tax on the products they buy based on the value of the product. VAT rates are percentage based, which means the greater the price, the more the consumer pays.
VAT ON IMPORTS:
You’re generally required to pay VAT on goods that you import into the UK. That VAT will probably be added to the price when you pay customs. You can generally claim it back when submitting your VAT return.
VAT ON EXPORTS:
If you sell goods and services to customers within the EU, you’ll probably need to add export VAT. The rate will depend on what you’re selling and who you’re selling to.
VAT LOAN FUNDING:
Spreading the costs of your VAT costs is a viable option if your business is, for whatever reason, unable to keep up with the quarterly VAT deadlines. It may be that you simply would prefer to spread the payments over a longer period of time. Vat loan funding is also becoming a popular choice for companies who are wanting to improve their cashflow both in the short and long term.
If you would like more information or would like to begin an application towards securing your own loan for your business, then please do not hesitate to get in contact with one of our finance brokers on 01908 429888 or via info@approved-finance.co.uk
References:
Xero. 2022. What is VAT and How Much is it? | VAT Guide | Xero. [online] Available at: <https://www.xero.com/uk/guides/vat/what-is-vat/> [Accessed 13 January 2022].
