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VAT is complicated. The technicalities and jargon used by some accountants can make even the longest-standing contractors slightly confused, so we’ve aimed to create a jargon-free, back to basics guide to value-added tax.
Value Added Tax (more simply known as VAT) is a consumption tax which is added to the cost of goods depending on their value. If you are VAT registered, you need to add 20% on top of whatever you sell. To make things a little more complicated, there are certain things that are zero-rated like food, books, newspapers and magazines, young children’s clothing and footwear but I wouldn’t worry about these for now. You can find more information in our guide to VAT.
Yes, some businesses feel that having a VAT number adds certain credibility and prestige to their company.
You have to register for VAT if, in the previous 12 months, your turnover has reached the VAT threshold amount of £85,000 (2019) or you expect it to reach £85,000 in the next 30 days. All the required VAT registrations forms are available on HMRC’s website, but one thing to remember is that the VAT threshold amount can change, so make sure to check each year to make sure you are in or out VAT registration. However, even if your turnover doesn’t meet the threshold for the year, you can still register for VAT voluntarily at any point.
Some contractors choose to register for BAT even if their annual turnover doesn’t meet the threshold. Registering and having a VAT number may help give your company the appearance of being larger than it is. Also when quoting for work some companies mandate that suppliers must be limited and be VAT registered.
However, this may make you less competitive for example: if you aren’t VAT registered currently and sell a product for £100, then this is all your customers will pay. If you then become VAT registered, you’ll have to charge VAT on top and will have to charge £120.00 or soak up the difference yourself and reduce your profit margin.
Before registering for VAT, it’s probably best to have a chat with an accountant (who will invariably quote you a price plus VAT).
Our VAT services include:
The above are just some of the services our Bookkeeping Managers can help you with, for a more detailed discussion please contact us today on 0203 633 2018 or complete our online contact form. We are here to help you start and grow your business and take the burden off you so you can get on with running your company.
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