09/03/2011

By Jason Sullock, New Customer Marketing Manager, Sage

Value Added Tax, or VAT, is a tax on most business transactions and imports. It applies to both goods and services.

Almost all businesses, with the exception of the very smallest, must deal with VAT. VAT can be quite complicated, so it’s important to prepare your business to manage it correctly, avoiding penalties and keeping your paperwork organised.

The sorts of exchanges where VAT must be applied are called taxable supplies. Some examples of taxable supplies include selling new or used goods, hiring out items, providing services (e.g. construction or hairdressing) or charging admission to an event or building. If your business provides any taxable supplies, it must be registered for VAT. Some goods and services are exempt from VAT. Examples include monetary loans, insurance services, and most sales or leases of buildings.

In broad terms, your business must be registered for VAT if:

• It has a taxable turnover that exceeded the set limit in the last 12 months

• The value of your import goods from other EU countries exceeded the same threshold, or

•You have taken over a VAT-registered business as a going concern

Since 2010, it has been mandatory for most businesses to submit their VAT returns online and from 2012 this will apply to all businesses. As well as helping businesses to record and monitor their VAT, using Sage accountancy software lets you automatically calculate your returns and submit them electronically.

For some businesses, there are ways of simplifying VAT. For example, Annual Accounting lets you pay a fixed estimated monthly or quarterly amount towards your VAT bill, submitting just one return at the end of the year. The Flat Rate Scheme, for businesses turning over up to £230,000 means you can calculate VAT each quarter as a fixed percentage of your VAT-inclusive turnover, with the percentage fixed by HMRC according to the sector you operate in.

Sage’s white paper Surviving VAT offers a comprehensive overview of these and other VAT issues.

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