You must register for VAT as soon as your business exceeds £85,000 in sales, or if you expect to exceed this level of income in the current financial year of your business.
Once you are registered for VAT, you must charge 20% on top of all the goods and services you supply to consumers and other businesses. Not all products are subject to 20% VAT: some products and services are subject to a 5% rate, while others attract a zero rate.
When you make a sale, you need to set aside the VAT element in your bank account. For example, if you charge £100 for a good or service and an additional £20 (20%) VAT, this is the "output" VAT you have collected for HMRC.
Every time you buy something from a supplier who charges you VAT, the VAT portion of your supplier's invoice is your VAT input.) At the end of your VAT period (normally every quarter), you add up all the output VAT you've charged, then subtract all the input VAT you've paid. You then pay HMRC the difference, or they pay you the difference.
You must pay any VAT due one month and seven days after the end of a VAT period. So, for example, if your VAT quarter ends on January 31, you must submit your VAT return and pay your VAT invoice by March 7.
If you have any questions, please contact your accountant or the accountant we work with.
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