VAT or Value Added Tax is this week topic of I Hate Numbers. In the UK alone VAT raises £136.6 billion. This is approximately £4,800 for each household, 17% of the total UK tax take.
The majority of countries have VAT or sales taxes, so VAT is a big deal.
In this episode we are going to look at what VAT actually is. What’s the role of a business that’s involved in VAT? How does VAT affect your prices? We may even volunteer to be VAT registered and be involved in the system.
Value Added Tax
VAT is a tax that’s charged on taxable supplies of goods and services, by a taxable person, during the course of a business. Forget the language of sales and purchases, it’s all about supplies!
The episode looks at what a supply is and describes the three types of supply:
- Exempt supplies
- Outside of the scope of VAT.
- Taxable supply
Taxable supplies and then broken down even further into two subheadings.
These are taxable, but the rate is zero! Typically children’s clothing, newspapers, most food and medicine.
Standard rated supply
This is the catch all category. Anything that is not exempt, outside of the scope of VAT, or Zero-rated is a Standard rated supply. The headline UK rate is 20%
A taxable person is a business that is required to be registered for VAT. So, what do the legislators mean by “required to be registered”? There are two forms of registration.
Based on values of supplies. That is the right type of supply. Once you are registered for VAT, your role is effectively an unpaid tax collector and administrator. You have a responsibility, not by choice, but one that’s imposed on you. Charge VAT correctly, keep the relevant records and collect the VAT from your customers..
If you do not follow the rules, then you will be fined, get penalties and at worst you can be prosecuted.
It sounds crazy. Why would a business wish to volunteer ti be an unpaid tax collector and administration. Get it wrong and you could be fined, pay penalties and interest..
Have a listen to the episode to find out more about voluntary VAT registration.
So in summary VAT quite a scary tax. You are the tax collector, the administrator, and if you are selling largely B to C, then VAT will represent a price hike for your customer. But also, VAT represents an improvement in your profit trajectory in your business direction. So look at that as a positive.
Value Added Tax impacts you business and you. Listen to this podcast episode, learn about more about how Value Added tax affects your business. Grab a free guide “Registering for VAT?” Check pour our free guide on Cloud and Digital Accounting
Grab a drink, make yourself comfortable, sit back and listen.
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