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Getting your VAT in order is something you’ll have to do if you run a small business. While not all small businesses need to pay VAT, there’s a good chance that you will. And although it can be quite simple to understand, it can get complicated. So what do you need to know about VAT for small businesses? Here’s a guide to the main areas you’ll need to consider.

VAT Overview

First of all, you need to know what exactly VAT is. VAT stands for Value Added Tax, and it is a tax that is added onto goods or services, usually at the Standard Rate of 20%.

Looking at a quick example, if you are registered for VAT and you sell a product for £200, the VAT will be 20% of the value of this (£40). So the total price charged to your customers is £240.

You do not pay the tax yourself. Instead, it is paid by your customers. You are in effect collecting the tax payment from them and then passing it to HMRC.

VAT for small businesses

Not All Products and Services Are the Same

We just looked at the Standard Rate of VAT, which is 20%, and most products and services come under this. However, some things have a lower rate of VAT of 5%. This is known as the Reduced Rate.

Examples of things that have the Reduced Rate are: gas and electricity, car seats for children, and nicotine patches.

Some things are VAT exempt, which means that no VAT is due on them. Examples of items that are VAT exempt are: most food and drink, medical treatment and gambling.

You can find more info on this at the Gov.uk website.

When You Have to Register for VAT

If you sell any items that are not VAT-exempt, you will probably have to register for VAT. However, when it comes to VAT for small businesses, this depends on your turnover. You only have to register for VAT if you earn over a certain amount, which is called the VAT threshold.

The current VAT threshold is £85,000. If you earn over £85,000 in any 12-month period, you will need to register and start charging VAT.

You should also register if you expect to earn over the threshold in the next 30 days. The only time when you may not need to register is when it is a temporary situation and you will go back under the threshold shortly.

VAT for small businesses

You Can Register Even if You Don’t Need To

You do not have to wait until you go over the threshold to register. In fact, for a small business, it may be in your interests to register anyway because you may be taken more seriously when you are VAT-registered. This could help you to attract better clients, so it’s something to consider.

Need Help with VAT for Small Businesses?

VAT for small businesses is a fairly simple tax to understand. However, like all taxes, it can get complicated. We would be happy to help with any aspect of your VAT so you can avoid making mistakes and make the whole process as simple as possible. Contact us today to get started.

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