Value Added Tax
From 1st April 2004, businesses are liable to register for VAT
at the end of any month if the taxable turnover of all business
activities in the year ended on the last day of that month exceeded
£61,000 p/annum. Businesses are required to notify HM Customs
and Excise within 30 days of the end of the month that the yearly
limit was exceeded, and will be registered from the beginning of
the next month, unless an earlier date is agreed with HM Customs
and Excise.
Liability to register arises if, at any time, your taxable supplies
in the preceding 30 days are expected to exceed £61,000. Businesses
must notify HM Customs and Excise, so as to be registered
from the beginning of the 30 days.
VAT rates and how it works
There are three rates of VAT today - Standard Rate (17.5%), Reduced
Rate (5%) and Zero Rate (0%). As is implied in the name, VAT works
on the value that each person adds to products or services.
Each person in the chain between first supplier and final consumer
is charged VAT on taxable supplies made to him (input tax), and
made by him (output tax). People have to pay out to HM Customs and
Excise the excess of output tax over input tax. The broad effect
of this scheme is that VAT does not affect businesses, except for
it needing administered. The final burden of tax falls on consumers,
whilst the burden of administration falls on traders.
Voluntary Registration
HM Customs and Excise will allow businesses to register voluntarily
if that business makes taxable supplies below statutory limits.
Once registered, VAT can be charged on supplies so that input tax
can be recovered. If the majority of a business's customers are
VAT registered, this may be beneficial, but not when customers are
the general public. When registered, additional paperwork is required,
so care is needed in making such a decision. This is where Academy
Accounting Ltd come in. By administering such a scheme, we can take
the hassle out of VAT, leaving a business to run more freely.
Exemption and Partial Exemption
Exemptions can be claimed but it is a very difficult situation
where analyses need to be done before a course of action
is decided upon. Once again, making use of Academy Accounting Ltd
would be beneficial as we could do the analysis for you, and make
recommendations based upon it.
Schemes
There are various 'schemes' upon which VAT can be operated -
optional flat rate scheme, cash accounting scheme and various retail
schemes. You need to know what is best for your business.
A simple call to Academy Accounting Ltd could help you enormously.
Interest, Penalties and Surcharges
HM Customs and Excise have the right to take criminal proceedings
for VAT wrongdoings, and this could lead to a fine, imprisonment,
or both. They also have the power to charge interest on overdue
tax (in certain curcumstances) and the penalties for lateness, incorrectness
and incompleteness are severe. Penalties can also be given for failure
to notify liability to be registered for VAT or unauthorised use
of VAT invoices, for failure to keep proper records (which have
to be retained for six years) and for various other regulatory breaches.
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