Once you turn into a vat registered trader in the UK then you should study all aspects of vat tax to successfully implement vat into your business. This move will allow you to reclaim excess vat that might have been paid in another country while also enabling you to charge the correct rate of vat to your customers.
If you do not know what is vat and have started a business in the UK where your taxable sales have touched £70,000 in the previous 12 months then you will have learn quickly since you will have to shift over to vat taxation system. You can also apply for vat registration directly when you start a new business if your business requires you to continue the chain of vat to your customers. However, you should not enter the world of vat in ignorance since you might pay a high price in the form of confusion and penalties.
Vat or value added tax is a form of taxation on goods and services that allows greater transparency, avoids double taxation, and also increases revenues for countries that enable it while plugging most tax loopholes at the same time. Most countries in the European Union have opted for vat in a move to establish a single market. It is the European Commission that forms vat rules and ensures implementation through various directives and notifications. In addition to learning eu vat rules, you will also need to study and follow uk vat rules issued by Her Majesty’s Revenue and Customs or hmrc.
There are various slabs of vat tax applicable on different goods and services that have been slotted into around 14,000 classifications by hmrc. These goods and services fall either into the standard vat rate of 17.5% that will increase to 20% from January 4, 2011 onwards or into the reduced vat rate of 5%. While a few goods and services attract zero vat rate there are others that are vat exempt while a few others fall outside the purview of vat. If you have trouble in figuring out vat rates then you should hire an expert vat agent or consultant to ensure that all aspects of vat are being followed correctly.
Once you get your vat registration along with your vat certificate from hmrc then you will have to issue a vat invoice while selling taxable goods or services which will need to mention your vat number, vat percentage, vat rates and vat amount, which in turn will have to be followed by the final gross amount. You will also be required to file vat returns regularly. You will also be allowed to apply for online vat refunds in case you need to reclaim previously paid vat, even if it was paid in another eu country that follows vat. However, it is crucial that you study the system of vat in great detail and also hire an efficient vat agent that can recover excess vat without committing any errors since mistakes could attract penalties from hmrc vat department.
Successful integration and implementation of vat in your business is extremely important since your business will progress smoothly only when your vat accounts are maintained correctly while vat being paid and collected follows applicable vat norms. You should certainly understand vat tax completely if you want to successfully implement vat in your business.