What is VAT

VAT stands for Value Added Tax. It is a tax charged on most goods and services sold in the UK. If a business is registered for VAT, it must add VAT to its prices and pass that VAT on to HM Revenue and Customs, known as HMRC.

VAT is paid by the end customer, but businesses are responsible for collecting it and submitting VAT returns to HMRC.

There are different VAT rates in the UK:

• Standard rate at 20 percent, which applies to most goods and services

• Reduced rate at 5 percent, which applies to some items such as home energy

• Zero rate at 0 percent, which applies to certain goods such as most food and children’s clothing

Some goods and services are exempt from VAT, meaning VAT is not charged at all. Examples include certain financial services and education.

You can see the full list of VAT rates on the government website here:
https://www.gov.uk/vat-rates

When do you need to register for VAT?

If you need to register for VAT, Mazuma will do this for you.

You must register for VAT if your VAT taxable turnover goes over the registration threshold set by HMRC.

As of now, the VAT registration threshold is £90,000 in a rolling 12 month period. This means you do not look at your financial year or calendar year. Instead, you look back at the previous 12 months at the end of each month. If your total VAT taxable sales go over £90,000 during that period, you must register.

You must also register if you expect your VAT taxable turnover to exceed £90,000 in the next 30 days alone.

VAT taxable turnover includes:

• Standard rated sales

• Reduced rate sales

• Zero rated sales

It does not include exempt income.

You can check the current threshold on the government website here:
https://www.gov.uk/vat-registration

What happens after you register?

Once registered:

• You must charge VAT on your VAT taxable sales

• You must submit VAT returns to HMRC, usually every three months

• You must pay any VAT you owe to HMRC

• You can usually reclaim VAT on eligible business expenses

You need to use MTD compliant software to file your VAT returns. Mazuma's software, MazApp is compliant and we will file your VAT returns for you.

Can you register voluntarily?

Yes. You can register for VAT even if your turnover is below £90,000.

Some businesses choose to register voluntarily because:

• Their customers are VAT registered and can reclaim the VAT

• They want to reclaim VAT on their expenses

• It gives the impression of being a larger or more established business

However, once registered, you must follow VAT rules and submit VAT returns on time.

What if you go over the threshold and do not register?

If you exceed the VAT threshold and do not register on time, HMRC can:

• Backdate your registration

• Charge you the VAT you should have collected

• Apply penalties and interest

It is important to monitor your turnover regularly so you know when you are close to the threshold.

If you are unsure whether you need to register, it is always best to check sooner rather than later.