Value Added Tax - VAT

No longer does the preparation of VAT returns need to be considered a wasted compliance exercise. Here at AML we take advantage of the opportunity to review you finances and when coupled with our wide array off complementary services off maximum value to you and your business through our expert advice and planning.

What is Value Added Tax and what are the thresholds?

Value Added Tax (VAT) is a tax on the sale of goods and services and is an essential component of the UK's tax system. VAT returns show the amount of VAT charged, the amount of VAT reclaimable and the amount of VAT due to be paid or reclaimed from HMRC. The VAT system is a self-assessment mechanism where businesses report and pay the VAT due to HM Revenue and Customs (HMRC).

VAT registration is compulsory for any eligible businesses with taxable turnover exceeding the annual threshold, which is currently £85,000.  Compulsory registration is a legal requirement and any business who fails to do so may face penalties and interest charges. However, you may choose to voluntarily register below this threshold.

Businesses eligible to deregister from VAT if their taxable turnover falls below the deregistration threshold, which is currently £83,000.

How do you submit a VAT return and what are the different VAT Schemes?

Since the introduction of Making Tax Digital all VAT registered businesses whose taxable turnover exceeds the VAT threshold must submit their VAT returns with a single source data link. This means any business which fall under these conditions must keep digital records and submit their VAT returns using MTD-compatible software such as Xero, which can provide a seamless flow of data from the source (such as sales and purchase invoices) through to VAT returns. The MTD initiative is designed to make tax processes more efficient, reduce errors, and provide better visibility to businesses over their VAT position.

There are three key VAT schemes in the UK which VAT registered business can use in order to prepare their VAT return companies through their MTD compliant software:

1. Flat Rate Scheme: This scheme allows small businesses to pay a fixed rate of VAT to HMRC instead of the actual VAT liability. The rate is determined by the industry sector that the business operates in. This scheme is designed to simplify VAT calculations for small businesses and to provide a cashflow benefit.
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2. Cash Scheme: This scheme allows businesses to pay VAT on the basis of the payments they make and receive, rather than on the basis of tax invoices received and issued. This scheme is designed to help businesses with cashflow problems.
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3. Marginal Scheme: This scheme is designed for businesses that sell second-hand goods, works of art, or antiques. The scheme allows businesses to pay VAT on the difference between the sale price and the purchase cost of the goods, rather than on the full selling price.

How can AML help?

Our team of experts can help you and your business understand the VAT mechanism across your business or completely take the burden away from you. Here are just some ways we can help:

1. Advising on VAT registration and deregistration and whether your business qualifies for special types of VAT schemes that could reduce the amount of VAT payable.
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2. Helping with VAT returns and ensuring accurate records are kept in compliance with HMRC rules.
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3. Advising on reclaiming VAT on expenditure, such as business assets and equipment.
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4. Providing general financial advice and support to help businesses manage their cash flow, including any VAT payments and refunds.
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5. Advice on Making Tax Digital (MTD) and compliant software

If you are looking for effective and reliable VAT services or want advice on the latest regulatory requirements, contact us today to schedule a consultation. Our team is here to help you manage your business and keep you on the straight and narrow.

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