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Monday 6 February

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VAT

Value Added Tax (VAT) is an additional charge of 17.5% on top of the price of the goods. We all pay VAT everyday on fuel, clothing and a wide range of foods, but most people don't notice it because it is just part of life.

The government sets a turnover threshold for businesses, and once they hit this amount in any 12-month period, they have to register for VAT and charge their customers accordingly. At present this figure is £64,000 (2007/8), but it tends to change with the annual Budget.

FAQs

When do I register for VAT?

At the latest, you must register for VAT once your turnover hits the VAT threshold in a 12-month period. Before this time you can choose to register voluntarily beforehand. Some businesses never register because their turnover never hits the threshold and it is not advantageous to their business to do so. This specifically applies to businesses selling into the consumer market because consumers cannot claim VAT back, so for them they pay more when VAT is added in.

If you intend to be a VAT registered limited company you must wait until you register your company as the VAT documentation must be in the name of the company, not you.

How do I charge VAT once I'm registered?

You work out your own price and then add 17.5% on top of the final amount.

Can I charge VAT if I'm not registered?

Absolutely not! This could be classed as fraud and could get you into seriously deep problems.

How do I get back the VAT that I pay?

As a VAT registered business every three months you add up all of the VAT you have collected in the last quarter and then take away the VAT that you have paid on goods and services for your business over the same period. If the difference if a positive figure you write a cheque to HM Revenue & Customs and send this off with your VAT return by the due date. If it is a negative figure you send off the return and HM Customs & Revenue will reimburse you for the additional VAT that you have paid.

If you are not VAT registered you do not think about it. You simply add up the total amount of money you spend running your business and offset the whole amount when you do your accounts and tax returns.

If I have any more questions about VAT, who can I ask?

You can go to the HM Revenue & Customs website, or call the national VAT advice service on 0845 010 9000. If in doubt – ask!