Whether you are just starting out or have been in business for a long time, PK Accounting Service can help you meet your VAT responsibility.PK Accounting Service makes sure you pay the right amount of tax in compliance with HMRC’s Real Time Reporting requirements, and ensures you never miss a deadline. PK Accounting Service is Qualified Accountants specializing in helping small-to-medium sized businesses, contractors, sole traders. We’ll help you choose the right VAT scheme, and make sure you understand and comply with VAT laws and regulations.
If you’re just starting out, we can help you decide whether you need to be VAT registered from the outset or not. And we will continue to monitor your situation, so that should it become obligatory for you to register for VAT, we can deal with all the paperwork for you. In contrast, we will also monitor your position for when we think you are able to and would benefit from de-registering. We will also look at the VAT schemes you are eligible for and establish whether you would be better off adopting one or a mixture of them. Some VAT schemes can lead to tax savings and a reduction in bookkeeping responsibilities.
Our Vat Return Services includes:
- Monitor sales for VAT thresholds
- Assistance with VAT registration
- VAT planning & administration
- Use of appropriate scheme
- Completion of VAT returns
- HMRC queries regarding disputes
- A guide to the Flat Rate VAT Scheme & the Limited Cost Trader.
The different VAT schemes are:
Standard VAT accounting scheme
With standard VAT accounting you’ll reclaim VAT that you may have had to pay on your purchases. You’ll pay or reclaim the net of the VAT that you have charged your customers and the VAT that you have had to pay on your purchases. Your VAT calculations are based on invoices raised, rather than when the invoices are paid.
Cash VAT Accounting scheme
Unlike Standard VAT accounting, Cash VAT accounting only takes into account VAT money actually paid or received, rather than just invoiced. Since you won’t have to pay VAT on any goods or services that the customer hasn’t paid for, it is good for your business’s cash flow.
Annual VAT accounting scheme
The annual accounting scheme helps small businesses by allowing them to submit only one VAT return annually rather than the normal four. During the year they pay installments based on an estimated liability for the year with a balancing payment due with the return. The scheme is intended to help with budgeting and cash flow and reduce paperwork. You will make advance VAT payments towards your VAT bill – based on your last return (or estimated if you’re new to VAT).
If your business has been registered for more than 12 months, you can choose to pay your VAT in 9 monthly installments. These will each be 10% of the amount owed for the previous tax year and will be due at the end of months 4 to 12 in the tax year.
Alternatively, you can pay 25% of the amount owed in quarterly installments (due at the end of months 4, 7 and 10). You’ll then owe the balance of VAT for that year and the VAT return 2 months after the end of the annual accounting period. This payment will close the difference between the amount you have already paid and the total figure of the bill.
Flat Rate VAT Accounting Scheme
Instead of calculating VAT on each transaction, you’ll pay a flat rate percentage of your turnover. This can be good for small businesses because it makes it much quicker and simpler to account for VAT. With the Flat Rate VAT Scheme, you can’t claim back the VAT on your purchases, except for certain capital assets over £2,000.
To be eligible for the Flat Rate VAT Scheme your business must have an annual turnover of £150,000 or less (excluding VAT). You will receive a 1% discount on your amount in your first year as a Flat Rate VAT-registered business. Once you’re on the Flat Rate VAT scheme you will be required to do the limited cost trader test every VAT period.
The limited cost trader Flat Rate VAT scheme
In April 2017, HMRC implemented new legislation in order to help tackle abuse of the VAT Flat Rate scheme. This was intended to manage the effect of an increasing number of sole traders and Limited Company. The introduction of the limited cost trader test means that small businesses (many ‘labour-only’ businesses) with low annual costs pay a flat rate of 16.5% VAT. limited cost traders do still receive the 1% discount on the Flat Rate VAT scheme for the first year. This reduces the rate for the first 12 months to 15.5%.
Limited cost trader test
If you only pay a small amount on goods you may need to review your VAT status to see if your business is classified as a limited cost trader. You’ll fit into this category if within your accounting period:
- Your goods cost less than 2% of your turnover
- Your goods cost less than £1,000 (if your costs are over 2% of your turnover)
The accounting period is classified as the period in which you submit a VAT return – usually quarterly.
- What counts as relevant goods when applying the limited cost trader test?
HMRC have given the below examples of relevant goods, this is not an exhaustive list:
- stationery and other office supplies to be used exclusively for the business
- gas and electricity used exclusively for your business
- fuel for a taxi owned by a taxi firm
- stock for a shop
- cleaning products to be used exclusively for the business
- hair products to use to provide hairdressing services
- standard software, provided on a disk
HMRC have also given the below examples of items that are NOT relevant goods:
- accountancy fees, these are services
- advertising costs, these are services
- an item leased/hired to your business, this counts as services, as ownership will never transfer to your business
- food and drink for you or your staff, these are excluded goods
- fuel for a car this is excluded unless operating in the transport sector using your own, or a leased vehicle
- laptop or mobile phone for use by the business, this is excluded as it is capital expenditure
- anything provided electronically, for example a downloaded magazine, these are services
- rent, this is a service
- software you download, this is a service
- software designed specifically for you (bespoke software), this is a service even if it is not supplied electronically
Not only can it be complicated to decide upon when to register for VAT, and time consuming to administer the VAT it can also be problematic as there is more than one VAT rate and your business has to ensure it applies the right VAT rate to the right invoice. This depends on what you sell and where you sell it. There are four VAT Rate categories:
- Exempt Rate – These are items that don’t incur VAT as they are exempt. This includes things like, finance, insurance and education. Talk with one of our accountants to see what is and is not exempt from VAT.
- Zero Rate – This is the rate charged on most food items, children’s clothing, prescriptions, books and newspapers etc – If you only sell Zero rated items you may not have to register for VAT.
- Reduced Rate – This is a 5% rate that is currently applied to fuel and power.
- Standard Rate – This is currently 20% and is charged on most items not included in the above three categories.
Needless to say, late VAT registration, errors, late VAT returns and late VAT payments can all lead to penalties and possibly interest being charged. So, allowing PK Accounting Service to take care of your VAT affairs, not only gives you peace of mind, but it should also avoid you wasting your hard-earned cash on penalties and interest.
PK Accounting Service will help you weigh up the pros and cons of each VAT payment method and help you choose the right one for your business.
For a free initial meeting to discuss all your VAT Return related needs, please drop us a line using our Online Quick Quote Form