Charging Value Added Tax (VAT)

1. Value Added Tax (VAT)

Value Added Tax (VAT) is a turnover tax. It is simply added to the sales of business products and services. A trader will charge the Value Added Tax (VAT) on sales and claim the Value Added Tax (VAT) trader had already paid for his purchases and expenditures. Value Added Tax (VAT) is, in fact, a very sensitive matter in the business and need to be dealt with extreme care. It can bring unnecessary and heavy penalties for a silly mistake, which at the time of preparation of Value Added Tax (VAT) return is probably not noticed if badly managed Value Added Tax (VAT) account can also put a lot of constraint on your ability to pay your due Value Added Tax (VAT) bill on the due date.

If your business has crossed the Value Added Tax (VAT) threshold or you are not sure about do you must register either voluntarily or by law, Zero One Consultants strictly recommends, you need to make an appointment to arrange your tax affairs as quickly as you can. Failure to do so or unnecessary delays can cause you a reasonable amount of penalty imposed by HM Revenue and Customs (HMRC). By contacting Zero One Consultants you will be able to apply for Value Added Tax (VAT) registration, prepare your Value Added Tax (VAT) return, submit your Value Added Tax (VAT) return and pay the right amount of Value Added Tax (VAT) on the submission date. In these days, everything is submitted online; Zero One Consultants will provide you with a link to pay your Value Added Tax (VAT) bill as well. For any genuine reason should you not be able to pay HM Revenue and Customs (HMRC) you can transfer the funds in Zero One Consultants Client Deposit Account and Zero One Consultants can arrange the payment to HM Revenue and Customs (HMRC) for you. Banks charges, if there are any to make the bank transfer will be payable by you.

Exploring the example of £1000+vat of £200 is the easiest to understand, but in practice, it is not that simple. This is one of the most complex and sensitive tax systems, HM Revenue and Customs (HMRC) is operating. We appreciate if you want to do this on your own, but soon you think that it is going out of your hands or you need a professional advice please call in for discreet professional assessment. We can emphasize the complexity of the Value Added Tax (VAT) tax system by the number of Value Added Tax (VAT) notices or manuals in force. There are about 50 different Value Added Tax (VAT) notices in use, being a true professional we should consult few notices all the time to give the best advice in our knowledge. In a dynamic and most complex case, there are about over 15 notices simultaneously used to resolve one Value Added Tax (VAT) return. Zero One Consultants, if acting on your behalf will draft a Value Added Tax (VAT) listing for you, containing all the input and output of vatable expenditures. In this list addressing the issues such as if there is any fuel scale to be done, if any benefits in kind are to be addressed or if there is an invoice, which is required in more detail from your supplier. Once approved by you, Zero One Consultants will submit the return to HM Revenue and Customs (HMRC) and will notify you when and how to pay your Value Added Tax (VAT) bill.

Value Added Tax (VAT) with Zero One Consultants is an ongoing consultancy, where you will be provided with a close monitoring of your Value Added Tax (VAT) affairs. Unlike year-end accounts, you will be doing this on regular basis, quarterly or monthly and in some cases if agreed by HM Revenue and Customs (HMRC) once in a year. Let Zero One Consultants to determine what is most suitable for you and to register you on the desired scheme. We will shed some light now on the basics of how and what Value Added Tax (VAT) system is.

2. How VAT Works

You can only charge Value Added Tax (VAT) if your business is registered for VAT. If you have a Value Added Tax (VAT) number, you must charge Value Added Tax (VAT) on all the goods and services you sell according to their respective category, rate, and claim Value Added Tax (VAT) on goods bought for business. Value Added Tax (VAT) is chargeable on things like These are, known as ‘taxable supplies’.

• Sales, e.g. goods and services.
• Hiring or loaning goods to someone.
• Selling business assets (different rules apply, Please check in).
• Commission charges for the services performed, do not get confused with financial services commission.
• Items sold to staff, e.g. canteen meals.
• Business goods used for personal reasons, drawings to be paid at Recommended Retail Price (RRP).
• Exchanges, ‘non-sales’ like bartering, part-exchange and gifts, this is tricky and complex area you will be charging the Value Added Tax (VAT) on your normal sales and whatever you will be taking in as medium of exchange will be treated as an input Value Added Tax (VAT) at a full market value and the difference will be paid able to HM Revenue and Customs (HMRC). If you are involved in something like this, please consult a qualified, experienced advisor or Zero One Consultants for further help and guidance.
• There are different rules for imports and exports and charities.

3. Types or Classes of Value Added Tax (VAT) Rates

• Standard Rate (Most goods and services are the standard rate. You should charge this rate unless the goods or services are classed as reduced or zero-rated).
• Reduced Rate (to charge this rate can depend on the item being provided but also the circumstance of the sale. For example, children’s car seats and domestic fuel or power is always charged at a reduced rate, mobility aids for older people are only charged at a reduced rate if they’re for someone over 60 and the goods are installed in their home).
• Zero Rated (goods are still VAT-taxable, but the rate of VAT you must charge your customers is 0%. For examples, books and newspapers, children’s clothes and shoes, motorcycle helmets, you still must record zero-rated transactions in your Value Added Tax (VAT) accounts and report them on your Value Added Tax (VAT) Return).
• Exempt Supplies (you cannot charge Value Added Tax (VAT) on exempt or ‘out of scope’ items, must not include in your Value Added Tax (VAT) records, such items should be recorded in your general business accounts. Examples of exempt items include insurance, postage stamps or services health services provided by doctors.
• • ➢Do not confuse yourself with royal mail commercial services; only the postage stamps are Value Added Tax (VAT) exempt if you hire royal mail or any other commercial postage and delivery services they are standard rated. If you are confusing about how to claim back, your royal mail Value Added Tax (VAT) back then this will be highly advised to speak to Zero One Consultants about the issue.

HM Revenue and Customs (HMRC) will always publish the latest rates and if there are any changes in Value Added Tax (VAT) rates on their website www.direct.gov. Ask for professional advice from Zero One Consultants if you are not sure about what type of rates your products are subject to. A business can easily sell a mixture of products subject to different Value Added Tax (VAT) rates.

4. Value Added Tax (VAT) Accounting Schemes

• a. Value Added Tax (VAT) Annual Accounting Scheme

Usually, Value Added Tax (VAT) registered businesses submit their Value Added Tax (VAT) Returns and payments to HM Revenue and Customs (HMRC) 4 times a year. With the Annual Accounting Scheme, however you:

• i. Make advance Value Added Tax (VAT) payments towards your Value Added Tax (VAT) bill based on your last return (or estimated if you’re new to VAT)
• ii. Submit 1 Value Added Tax (VAT) Return a year
• iii. When you submit your Value Added Tax (VAT) Return you either:
• • 01. Make a final payment the difference between your advance payments and actual Value Added Tax (VAT) bill
  • 02. Apply for a refund if you’ve overpaid your Value Added Tax (VAT) bill

The scheme would not suit your business if you regularly reclaim VAT because you’ll only be able to get one refund a year (when you submit the Value Added Tax (VAT) Return).

With the Cash Accounting Scheme, you:

• b. Value Added Tax (VAT) Cash Accounting Scheme

Usually, the amount of Value Added Tax (VAT) you pay HM Revenue and Customs (HMRC) is the difference between your sales invoices and purchase invoices. You must report these figures and pay any money to HM Revenue and Customs (HMRC) even if the invoices haven’t been paid.

• i. Pay Value Added Tax (VAT) on your sales when your customers pay you
• ii. Reclaim Value Added Tax (VAT) on your purchases when you have paid your supplier

• c. Value Added Tax (VAT) Flat Rate Scheme

The amount of Value Added Tax (VAT) a business pays or claims back from HM Revenue and Customs (HMRC) is usually the difference between the Value Added Tax (VAT) charged by the business to customers and the Value Added Tax (VAT) the business pays on their purchases. With the Flat Rate Scheme:

• i. You pay a fixed rate of Value Added Tax (VAT) to HM Revenue and Customs (HMRC)
• ii. You keep the difference between what you charge your customers and payments to HMRC
• iii. You can’t reclaim the VAT on your purchases, except for certain capital assets over £2,000

• d. Value Added Tax (VAT) Margin Schemes

Value Added Tax (VAT) margin schemes tax the difference between what you paid for an item and what you sold it for, rather than the full selling price. You pay VAT at 16.67% (one-sixth) on the difference.

You can choose to use a margin scheme when you sell:

• i. Second-hand goods
• ii. Works of art
• iii. Antiques
• iv. Collectors’ items

You can’t use a margin scheme for:

• i. Any item you bought for which you were charged Value Added Tax (VAT)
• ii. Precious metals
• iii. Investment gold
• iv. Precious stones

Example

You buy a work of art for £1,500 and sell it for £2,000. Using a margin scheme, you pay VAT at 16.67% (one-sixth) on the difference: £500. This means you’ll pay £83.33.

• e. Value Added Tax (VAT) Retail Schemes

If you sell goods, you must calculate how much Value Added Tax (VAT) to record in your Value Added Tax (VAT) account. For goods sold inclusive of Value Added Tax (VAT), you must deduct the Value Added Tax (VAT), and you must record. For goods sold exclusive of Value Added Tax (VAT), you must add it. VAT retail schemes can make calculating your Value Added Tax (VAT) simpler. Instead of calculating the Value Added Tax (VAT) for each sale you make, you do it once with each Value Added Tax (VAT) return.

There are three standard Value Added Tax (VAT) retail schemes:

• i. Point of Sale Scheme; you identify and record the Value Added Tax (VAT) at the time of sale.
• ii. Apportionment Scheme; you buy goods for resale.
• iii. Direct Calculation Scheme; you make a small proportion of sales at one Value Added Tax (VAT) rate and the majority at another rate

your turnover excluding VAT is over £130 million, you must agree on a bespoke retail scheme with HM Revenue and Customs (HMRC). You can use a retail scheme together with the Cash Accounting Scheme and the Annual Accounting Scheme. You cannot use retail schemes with the Flat Rate Scheme.

5. Frequencies of Value Added Tax (VAT) Returns

There are different schemes of Value Added Tax (VAT), which a trader can apply for depending on nature of his business. Zero One Consultants will help you to determine which one is the most suitable for you after making a careful assessment of what your needs and requirements are. The two set in stone are the ones we are discussing below, but different discussing schemes are

• a. Quarterly (Traditional VAT)

The most used and simplest scheme in operation is doing a vat return every quarter that is three monthly. This is simplest and traditional method of maintaining a vat system.

• b. Yearly

Annual Accounting Scheme is that will allow you to file in your Value Added Tax (VAT) return once in a year by the year end, but still, Value Added Tax (VAT) payment will be made every quarter on an account basis.

6. Value Added Tax (VAT) Record Keeping

HM Revenue and Customs (HMRC) advises that a Value Added Tax (VAT) registered businesses must:

• Keep complete Value Added Tax (VAT) Records of sales and purchases invoices and receipts.
• Keep a separate summary of value added tax (vat) called a Vat Account and prepared a summary called Value Added Tax (VAT) listing.
• Always issue correct Vat Invoices with full details of the seller.

You need to keep Value Added Tax (VAT) records for HM Revenue and Customs (HMRC)

• Value Added Tax (VAT) records for at least six years (or 10 years if you use the VATMOSS service.
• Value Added Tax (VAT) records on paper, electronically or as part of a software program (e.g. book-keeping software). Records must be kept accurate, complete and in a readable format.
• If you have lost a Value Added Tax (VAT) invoice or it is damaged and no longer readable, ask the supplier for a duplicate (marked clearly ‘duplicate’).

®  HMRC can visit your business to inspect your record keeping and charge you a penalty if your records aren’t in order.

7. VAT Invoice

Value Added Tax (VAT) invoice you are issuing or a Value Added Tax (VAT) invoice you are going to claim as purchases should be a more detailed as compared to a normal invoice, which we may happily use for year-end accounting. Contents of Value Added Tax (VAT) invoice

• Name of the seller.
• Address of seller.
• Registered company number if it is a limited company.
• Date of invoice (Tax Point).
• Date of services or products provided.
• A detailed description of services provides (not the full story but reason able detail).
• Each item separately priced in net, Value Added Tax (VAT) and gross columns.
• Zero-rated and low rated items separately disclosed and properly shown in the columns.
• Total of the invoice
• Any settlement discounts
• Net total of invoice
• The total amount of Value Added Tax (VAT) applied on different invoiced items.