| Vat Registration | | | | percentages for each sector. Customers are |
| Businesses become liable for vat when sales | | | | charged vat at the normal vat rate, 17.5% if |
| reach the vat threshold set on 1st April 2007 at | | | | standard rated goods. The actual vat payable is |
| £64,000 p.a. regardless of whether that | | | | then calculated at the appropriate percentage of |
| business has registered for vat purposes. | | | | the total sales figure including vat. An adjustment |
| Businesses whose customers are vat registered | | | | to the accounts would then be required to adjust |
| should consider opting for voluntary vat | | | | for the difference between the vat paid and the |
| registration as sales would not be affected by vat | | | | amount payable if an inputs and outputs basis had |
| registration and registering would permit that | | | | been used. DIY Accounting software automates |
| business to also reclaim vat input tax on | | | | this flat rate calculation by automatically calculating |
| purchases. Businesses with mainly non vat | | | | the vat on sales at the flat rate and expensing |
| registered customers may wish to delay vat | | | | the vat input to the purchase accounts. |
| registration until the point is reached at which | | | | Businesses in their first year of vat registration |
| liability to vat tax becomes inevitable. | | | | also receive a 1% reduction in the vat flat rate |
| Consideration should be given to maintaining sales | | | | for their trade sector which can save tax. |
| below the vat threshold provided this does not | | | | Annual Vat Accounting Scheme |
| result in a significant loss of profit. When the vat | | | | Not suitable if you receive repayments of vat, |
| threshold of £64,000 p.a. is exceeded | | | | the annual accounting scheme is based upon an |
| Customs & Excise should be advised. It may be | | | | annual estimate of the vat bill which is then paid in |
| possible to delay vat registration if sales breached | | | | monthly or quarterly instalments throughout the |
| the vat threshold due to an abnormal sales period | | | | year with the balance payable or received at the |
| that may not necessarily be repeated in the | | | | end of the year when the annual vat return has |
| foreseeable future. Having reached the point of | | | | been submitted. The vat threshold for this |
| vat registration consideration should be given to | | | | scheme is businesses with a sales turnover not |
| the various vat schemes which are available to | | | | expected to exceed £1.25m. The main |
| either simplify the vat calculation or smooth the | | | | benefit of the annual accounting scheme is to |
| vat tax liability. | | | | smooth the vat payments over the year. |
| Choose the right vat scheme for your business | | | | Vat Cash Accounting Scheme |
| Unless a vat scheme is adopted then the | | | | Under the vat cash accounting scheme the vat |
| standard inputs and outputs vat scheme would be | | | | return and liability to pay vat is based upon the |
| applied. This involves charging all customers vat on | | | | date sales were received and the date purchases |
| sales known as output vat and paying this | | | | were paid rather than the invoice tax points. |
| amount to the Vat office each quarter. Vat | | | | The vat threshold for the cash accounting |
| Registered businesses can also deduct from the | | | | scheme is businesses with a sales turnover |
| vat liability the input vat on purchases that | | | | excluding vat of under £1.35m.which can be |
| suppliers have charged the business. It is | | | | extended for existing users to a turnover of |
| important to ensure all sales and purchase invoices | | | | £1.6m and left in place for up to 6 months |
| are retained and an audit trail from the individual | | | | after the vat threshold has been breached. |
| transactions to the vat tax liability is maintained as | | | | Accounting for vat using the Cash Accounting |
| Customs & Excise do inspect vat records, the | | | | Scheme may require businesses to record sales |
| frequency of those visits, often once every three | | | | and purchases on cash received and paid basis |
| years can increase dramatically if the vat records | | | | and adjust accounting records for accruals. |
| are considered inadequate. Accounting Software | | | | Alternatively, sales and purchases can be entered |
| can provide a solution to record keeping and DIY | | | | into the Accounting records based upon the |
| Accounting produce automated vat calculations | | | | invoice tax points and a quarterly adjustment |
| from the basic data entry of sales and purchases | | | | made for debtors and creditors at the beginning |
| on excel spreadsheets. | | | | and end of each quarter. Such accounting |
| Vat Schemes | | | | adjustments would not be suitable for everyone. |
| Vat Flat Rate Scheme | | | | Vat Retail Schemes |
| The vat flat rate scheme can be adopted by | | | | Retailers selling to the general public may not |
| businesses that have an annual turnover excluding | | | | easily be able to produce vat sales invoices to |
| vat of under £150,000 p.a. Instead of paying | | | | individual customers and there are various vat |
| the difference between vat on sales and vat on | | | | retail schemes available on the Customs & Excise |
| purchases businesses that have adopted a vat | | | | website that retailers can adopt. The main |
| flat rate scheme pay vat at a percentage of | | | | benefits of the vat retail schemes are to dispense |
| sales in line with the average for that trade | | | | with every customer being issued a vat invoice |
| sector. Vat is not reclaimable on purchases under | | | | unless requested. Vat retail schemes can be used |
| the flat rate scheme. The Customs & Excise | | | | in conjunction with both flat rate schemes and the |
| website contains details of the vat flat rate | | | | annual vat accounting scheme. |