VAT (value added tax) is a tax on goods and services that is charged at each subsequent stage of sale. In the UK, when running a business, you can choose to become a VAT payer at any time. In some cases, it is the trader’s responsibility. How do you settle VAT in the UK and how can you reclaim some of your expenses?
Mandatory registration as a VAT payer
A sole trader with an annual turnover in excess of £85,000 must become a VAT payer in the UK. The same applies if you take over an existing business that is a VAT payer, its business will continue. A person who stocks goods in the UK that are directly directed to customers must also be registered as a VAT payer.
Various rates of VAT in the UK
Registration for VAT can be done online. You must choose one of four options for paying VAT, while tax returns must be submitted quarterly or annually. The standard rate of VAT in the UK is 20%. There is also a reduced rate of 5% and a zero rate. The reduced rate applies to, among other things, the delivery of gas and electricity to households, as well as the renovation of residential homes and the sale of children’s car seats. The 0% rate, on the other hand, applies to most food products, clothing, children’s footwear and products to protect life or health.
Reduction of payable VAT
The VAT due may be reduced in certain cases. VAT can be reclaimed by a company that makes purchases related to business purposes. However, the conditions for allowing VAT to be reclaimed are strict. Purchases must be included in the VAT return submitted. It is also necessary to keep full records of the transactions made, including VAT invoices or receipts, descriptions of the transactions and information on how the purchase is related to the business.
Rules for the reclaim of VAT in the UK
Purchases of goods related to business purposes are VAT reclaimable provided they are made within 4 years of registration. For services, this period is reduced to only 6 months. This can be done provided the total amount does not exceed £10,000 or 1% of the value of the company’s total revenue, excluding VAT. In such a situation, the maximum expense limit is £50,000.
Items qualifying for a tax reduction
Not all items can be included for VAT reclaim. If an item is used not only for business purposes but also privately, only part of their value can be deducted. You must calculate the proportion between personal and business expenses and determine your tax liability on this basis. In the case of cars, it is also important to document a certain mileage. If the car is used exclusively for business purposes, it is possible to recover the fuel tax. However, this requires detailed mileage records, as well as the costs of operating and maintaining the vehicle, including necessary repairs, the cost of parking the vehicle and accessories allowing the car to be used for business purposes.
Cooperation with an accounting office
The process of settling and reclaiming VAT can seem complicated. You can do it yourself or make use of the wide range of accounting services available on the market. A professional accounting office will make tax settlements easy and, in case of doubt, you will be able to learn the detailed rules and interpretations of the regulations allowing for VAT reduction. In particular, it is worth paying attention to the company INTERTAX and the advice available at https://polishtax.com/how-far-back-can-you-claim-vat-on-expenses-in-uk/. In this way, you will save time, which you will be able to spend on your favourite hobbies, social or family events.