How does VAT works?
This Question “How does VAT works?” comes in mind of all business owners.
VAT charged on things like:
- business sales – for example when you sell goods and services
- hiring or loaning goods to someone
- selling business assets
- commission
- items sold to staff – for example canteen meals
- business goods used for personal reasons
- ‘non-sales’ like bartering, part-exchange
- exchanges) and gifts
These are known as ‘taxable supplies’. There are different rules for charities registration).
VAT-registered businesses Responsibilities
VAT-registered businesses:
- must charge VAT on their goods or services
- may reclaim any VAT they’ve paid on business-related goods or services
If you’re a VAT-registered business you must report to HM Revenue and Customs (HMRC) the amount of VAT
you’ve charged and the amount of VAT you’ve paid. This is done through your VAT Return which is usually due every 3 months.
You must account for VAT on the full value of what you sell, even if you:
receive goods or services instead of money (for example if you take something in part-exchange)
haven’t charged any VAT to the customer – whatever price you charge is treated as including VAT
If you’ve charged more VAT than you’ve paid, you have to pay the difference to HMRC. If you’ve paid more
VAT than you’ve charged, you can reclaim the difference from HMRC.
You can only charge VAT if your business is registered for VAT.