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Welcome to this HM Revenue & Customs webinar 'VAT now that you are registered'. During
today's webinar I will take you through VAT rates and some things that don't include VAT.
I will introduce you to what you can and can't claim for VAT. Then we will cover keeping
business records. There is a lot more specific information on the GOV.UK and HMRC websites.
If you want to look at detailed information you can refer to VAT notices on the HMRC website.
Only a VAT-registered business can charge VAT to its customers and may be able to recover
any VAT paid on its business purchases. This means that you may receive receipts that don't
show VAT. This is because the business issuing them is not VAT registered. It's important
to remember that your business can only claim back VAT it has been charged. We will look
at receipts later. It is important that you understand there are different rates of VAT
depending upon what the item or service is. The current rates are standard rate of 20%,
the reduced rate of 5% and a zero% rate. The standard rate is applied to most supplies
of goods and services unless they are listed under other rates or categories of VAT. The
standard rate is currently 20%. The reduced rate covers a wide range of items including
domestic fuel and power, stop smoking products, and children's car seats. You can find more
information about other products charged at the reduced rate by visiting the HMRC website.
The final rate of VAT is zero rate. This covers basic food items, children's clothing, books
and newspapers, and most public transport. The zero rate is a taxable rate of VAT, even
though it is at zero. Each of these rates of VAT, that is standard rate, reduced rate
and zero rate, are known as taxable supplies. It is important that you always make sure
you are using the right rate. Some things are exempt or outside the scope of VAT. Items
that are exempt from VAT include financial services, insurance and betting. You can find
further guidance on the HMRC website. This highlights the appropriate public VAT notices
that contain more details information. In addition to financial and insurance services
there are other goods and services exempt from VAT, such as education, training and
charitable fund-raising events. If all of the goods and services you sell are exempt,
your business is exempt and you won't be able to register for VAT. This means you won't
be able to claim back any VAT on your business purchases. Exempt supplies are not taxable
for VAT. So you do not include sales of exempt goods or services in your taxable turnover
for VAT purposes. If you buy exempt items, there is no VAT to reclaim. There are some
things that aren't in the UK VAT system at all - they're outside the scope of VAT. Let's
have a look at items outside the scope of VAT. Some goods and services aren't covered
by the UK VAT system at all - they're outside the scope of VAT. You don't charge VAT on
goods or services that are outside the scope of VAT. Some are obvious. For example, if
you buy and sell goods abroad, you do not have to pay United Kingdom VAT because the
goods have not been supplied in this country. In addition, there are special rules for deciding
where certain services must be taxed when they are performed outside the UK or are supplied
to a customer outside the UK. You will find information about this in Notice 741 Place
of supply of services. But supplies can be "outside the scope" even if the transaction
takes place here. For example, if you own a shop and sell some furniture privately from
the flat above the shop, the supply is outside the scope of VAT. This is because the sale
of things that have never been used in your business is not a business sale. They are
not taxable supplies and no VAT is charged on them. Items that are outside the scope
of VAT include non-business activities like a hobby - for example, you might sell some
stamps from your collection and fees that are fixed by law - known as 'statutory fees'.
These cover the congestion charge, vehicle MOT tests, and tolls for bridges, tunnels
and roads. This means that no VAT is added to them. This may seem to be the same as the
zero rate, but there is an important difference. If something is zero-rated when you sell it
you can still claim the VAT paid on the purchase of that item. Now that you are VAT-registered,
remember that when you sell goods and services to your customers you need to add VAT, at
the right rate, to your selling price. Even if you have registered voluntarily and your
'taxable supplies' are below the VAT threshold you'll still need to add the VAT to all your
taxable sales. Here's an example which shows how easy it is to calculate the VAT on sales.
The items are selling for £20 each. The standard rate of VAT is due, so you add 20% to the
selling price. This is £4 so the total selling price becomes £24. You can also see that
the VAT due to HMRC is £4. In this example the goods sold are at the reduced rate, 5%
VAT. The selling price is still £20 but now the amount of VAT due is £1. The total price
to the customer is £21 and the VAT due to HMRC is £1. Sometimes you may have a final
price that you have been charged as a customer, or you have given a client a special price.
Now you need to work out the VAT included in the total selling price. An easy way to
do this is to use the VAT fraction. VAT fractions change when the VAT rate changes. The current
fraction for the standard rate of VAT (20%) is one over six or one sixth on a VAT inclusive
price. Here the rate of VAT is 20% and the total price, including VAT is £120. If we
multiply £120 by one sixth the result is £20. This is the VAT included in the total
selling price. The price before or excluding VAT is £100. Now let's look at the reduced
rate fraction. For inclusive prices using the reduced rate of 5% the fraction is one
over twenty one. This is a similar calculation but here we know the rate of VAT is 5% and
the total price, including VAT is £105. If we multiply £105 by one over twenty one the
result is £5. This is the VAT included in this selling price. The price before or excluding
VAT is £100. If this seems a lot to remember you can visit the GOV.UK website or watch
this webinar again, in the live format or recorded version. Now we are going to look
at two types of invoices that you can come across in your day to day transactions. There
are different kinds of VAT invoice a VAT-registered business can give to customers. Most invoices
need to include your VAT number, business name and address, the invoice number, the
invoice date, the date of supply, your customer's name or trading name and address, a description
of the goods or services supplied to the customer and the rate and amount of VAT. This invoice
has the following aspects highlighted. Invoice Number. You need to pick a system and stick
with it -- once you've issued lots of invoices it'll be a huge hassle to change. PO Number.
This stands for Purchase Order Number, essentially meaning "Your reference". If you are dealing
with a big company they may give you a Purchase Order number, so fill it in here to help tie
your invoice to the entry on their system. Reference. This is another method of tying
this invoice to the corresponding payment on your client's system. Tax Date. Enter today's
date or the date the work was completed. Terms. This is the period within which the client
must pay the invoice. Commonly 28 days (four weeks) or one calendar month. Payment Due
By. This is the date by which the invoice must be settled. You may receive invoices
that show just the gross figures (with VAT included), for instance a till receipt. You
may have thought of issuing this type of invoice yourself but it only can be used for retail
sales of £250 or less. Simplified VAT invoices only need to show the seller's name and address,
the seller's VAT registration number, the time of supply and a description of the goods
or services. Also, if the sale includes items at different VAT rates then your simplified
VAT invoice must also show the total price including VAT, and the VAT rate applicable
to the item. If you accept credit cards, then you can create a less detailed invoice by
adapting the sales voucher you give the cardholder when you make the sale. You do need to keep
copies of any less detailed invoices you issue. Do not confuse simplified invoices or till
receipts with those you may get from businesses that are not registered for VAT. Only a VAT-registered
business can charge you VAT and businesses can only claim VAT that they have been charged.
Depending upon your business the rate of VAT you charge your customers can be different
from the rate your suppliers charge you. If you have registered voluntary for VAT then
you will have to charge the appropriate rate of VAT on the goods you sell or services you
provide. Let's look at how this works. Here's Helen, she makes children's clothes which
are zero-rated. Her business costs for the materials she uses in making the clothes and
other costs like heating and lighting will have included VAT at the appropriate rates.
The children's clothes which Helen makes are zero-rated as already mentioned, but as she
is VAT-registered she can claim back the VAT on the fabrics she buys to make them, even
though she doesn't charge VAT on the sale of the finished clothes to her customers.
Some of the terms you will often hear in VAT and see on the VAT return are Inputs, Outputs,
Input Tax and Output Tax. What are they? Inputs are things you buy for your business. Sometimes
you will sell them on to your customers and sometimes you will use them in your business.
Input tax is the amount of VAT on these purchases. So inputs are the things moving into your
business. Outputs are the things you sell to your customers and output tax is the VAT
you add to the value of your sales at the correct rate. So outputs are the things you
move or sell out of your business. The amounts of input and output tax you charge or are
charged are what you include on your VAT returns. Some things you cannot normally claim back
include things purchased before you became VAT-registered, things that you use for both
personal and business use and motoring fuel. VAT rules for business expenses are sometimes
different from income tax rules. Therefore, just because you can claim it for VAT doesn't
mean it's the same for Income Tax or Corporation Tax. But if you are selling things that are
exempt from VAT, for example, insurance, you cannot claim back any VAT on things you buy
for your business, because your sales are exempt from VAT. There are a number of situations
where you cannot claim back VAT that you've paid. These include goods and services that
are bought for your personal use, buying cars, business entertainment expenses and business
gifts where the cost of all gifts given to the same person is over £50 in the same year.
There are exceptions, so please check the GOV.UK website. You may use some of the goods
and services that you buy for both business and non-business use. You normally claim VAT
on the proportion of items you use for business purposes. For example, if you buy a computer
and use it 50 per cent for your business and 50 per cent for private use, you can claim
50 per cent of the VAT. The rules applying to motoring expenses and road fuel are different.
If your business pays for your car's road fuel, there are four ways you can deal with
the VAT. Reclaim all of the VAT. You need to use all the fuel for business purposes.
Where there is both business and personal use you can reclaim the proportion of VAT
on fuel used for business mileage. You'll need to keep detailed records of your business
and private mileage for this. Reclaim all of the VAT and pay the appropriate fuel scale
charge - this is a way of accounting for output tax on fuel that your business buys but that's
then used for private motoring. Don't claim back any VAT. This can be a useful option
if your mileage is low and also if you use the fuel for both business and private motoring.
If you choose this option you must apply it to all vehicles including commercial vehicles.
You may be able to claim back the VAT that you have paid on some goods and services that
you have bought before registering for VAT. There are conditions you must meet in order
to claim this VAT, including keeping records of what you bought and how you use, sell or
dispose of them. You can generally claim back VAT on goods you bought up to four years
before you registered for VAT providing you still have them on hand, and services you
bought for your business up to six months before registration. Goods include items you
have bought to sell to customers and assets, such as computers, to use in your business.
You can only claim back for goods that you still have in the business. You can't claim
VAT on any goods where you have completely used them up before you registered for VAT:
for example, petrol, electricity or gas used before your date of registration. Examples
of services you might have paid for are legal and accountancy fees, services relating to
setting up your computer and other equipment, and those for your premises. It's a good idea
to do a stock take on the day you become VAT registered. By doing this you will know what
you still have on hand so you can claim back the VAT. If you need more information there
is help and guidance on www.GOV.UK. It doesn't matter whether your sales are standard, reduced
or zero-rated for VAT. You will need to keep all of the records, such as VAT receipts,
to be able to claim back VAT. One important thing all businesses need to do is keep books
and records. You probably already have a system in place. I am going to take you through VAT
records in easy stages. Now you are VAT-registered you need to keep a record of the VAT on your
sales and purchases. Your records probably already include your sales and purchase invoices,
so usually for VAT it is as simple as adding a VAT column for each of these. You use your
records to complete your VAT Return and pay any VAT due on time. Soon after you register
for VAT HMRC will let you know your VAT number and the date you were registered, called your
Effective Date of Registration or EDR. Keep these details safe as you will need them if
you contact HMRC. Also you need to show your VAT number on all the invoices you issue.
We'll talk about invoices soon. Your business records include all your purchase and sales
invoices as well as any cash books, diaries, and till rolls you have. Your records may
also include bank and PayPal statements. Each business may keep different records. If you
use a computer, remember it's important to keep a 'back up' of your records. For VAT
purposes all your business records need to be kept for at least six years after the last
return for that year has been submitted. Keeping accurate books and records is an important
factor in running a successful business. Accurate records will, for example, let you see how
much you are owed by your customers or whether your business is growing. They will help you
in sending your returns on time and help you avoid paying penalties. You will need to send
regular VAT Returns as well as a tax return each year. The figures that you enter on your
returns must be accurate. If you do not keep accurate records you will not be able to provide
accurate figures. If you send us an inaccurate return you may have to pay additional tax
plus interest and, in some cases, a penalty. Accurate, up-to-date records will help you
fill in your tax return correctly and so help you avoid these additional charges. You must
keep a separate record of the VAT you charge and the VAT you pay on your purchases. This
record is called a 'VAT account'. This is a legal requirement. You use the figures in
your VAT account to complete your VAT Return. The VAT account is the calculation you make
by adding up the VAT from your business records. It will probably look similar to this one,
although yours may be electronic using a spreadsheet or software package. It includes a total of
your outputs and output tax, inputs and input tax for the quarter. It may also show any
adjustments made from a previous quarter. There aren't any rules on what a VAT account
should look like, but it must show your total VAT sales, your total VAT purchases, the VAT
you owe HM Revenue & Customs (HMRC), the VAT you can claim from HMRC, if your business
uses the VAT Flat Rate Scheme, I'll tell you more about this later - the flat rate percentage
and turnover it applies to, the VAT on any EU acquisitions (purchases) or dispatches
(sales). If you've made an error in your VAT Return the VAT account must show the date
you discovered the error, details about the error -- for example how it happened, how
you corrected it. If you write off an invoice as a bad debt, you must keep a separate 'VAT
bad debt account'. The debt must be older than 6 months and for each bad debt you must
show the total amount of VAT involved, the amount written off and any payments you've
received, the VAT you're claiming on the debt, the VAT period(s) you paid the VAT and are
claiming the relief, and invoice details like date and customer name. You must keep this
information for four years. All these records must be kept up to date and must be in sufficient
detail to allow you to calculate correctly the amount of VAT that you have to pay to,
or can claim back from, HMRC. To send returns electronically you need to open an online
account on the HMRC website. If you are already registered for any of HMRC's online services
then you add the VAT online function to your existing online account. This is an extract
from an online VAT Return. Nearly all businesses must send the returns online. I am not going
to take you through completing the VAT Return box-by-box. Every time you fill it in there
is guidance available by clicking on the link shown in 'Important note' box at the top of
the page. You normally complete one every quarter. So, if your first return is due in
May, your next return will be due in August and then November and February. Keep a note
in your calendar of when your next return is due, or sign up for an email reminder,
so you know when to set time aside to complete it. Remember by sending your VAT Return in
time and paying by the due dates you avoid penalties. Even if you have no VAT to pay,
or get back, you still need to send a return, often called a 'nil' return. You may just
have to put zero in some boxes. Since VAT Returns are submitted online, HMRC do some
of the calculations automatically for you. But it is still useful to know how to work
out whether you will owe HMRC a VAT payment, when your return is due, or if you will be
due a refund. It is very easy to do this; you simply compare all your input tax and
output tax for the period of your VAT Return. If you have charged more output tax to your
customers than you have reclaimed as input tax, then you pay the difference to HMRC.
Here output tax exceeds input tax by £535 so this is what you would need to pay HMRC.
But if you have reclaimed more input tax on things you have purchased than you have charged
as output tax, HMRC will refund you the difference. This leads me nicely on to payments. Normally
the date for sending in your VAT Return and making your VAT payment are the same. Just
as it's a good idea to keep a note when you need to send in your next return, it's also
a good idea to make a note of when you need to pay, and how much. You can sign up for
email alerts so you don't forget to send in your VAT Return and pay on time. Most businesses
send their forms and pay the right amount of tax on time. By doing this they avoid extra
paperwork and possible interest charges. If you are worried about making a payment, contact
us as soon as possible. Don't leave it until payment is due. There are a number of schemes
available which may make accounting for VAT easier for you but you will have to meet certain
conditions before you can use them. Details can be found on GOV.UK. The most common ones
are Cash Accounting: Usually, the amount of VAT you pay HMRC is the difference between
your sales invoices and purchase invoices. You have to report these figures and pay any
money to HMRC even if the invoices haven't been paid. With the Cash Accounting Scheme
you pay VAT on your sales when your customers pay you, and reclaim VAT on your purchases
when you have paid your supplier. To join the scheme your VAT taxable turnover must
be £1.35 million or less. Annual Accounting: Usually, VAT-registered businesses submit
their VAT Returns and payments to HMRC four times a year. With the Annual Accounting Scheme
you make advance VAT payments towards your VAT bill - based on your last return (or estimated
if you're new to VAT) and submit one VAT Return a year. When you submit your VAT Return you
either make a final payment - the difference between your advance payments and actual VAT
bill, or apply for a refund - if you've overpaid your VAT bill. The scheme wouldn't suit your
business if you regularly reclaim VAT because you'll only be able to get one refund a year
(when you submit the VAT Return). You can join the scheme if your estimated VAT taxable
turnover is £1.35 million or less. Retail schemes: If you sell to the general public,
especially high quantities of relatively inexpensive items, it can be difficult, time-consuming
and costly to record the VAT on every individual sale in your accounts. VAT retail schemes
can make calculating your VAT simpler. Instead of calculating the VAT for each sale you make,
you do it once with each VAT Return. There are three standard VAT retail schemes: Point
of Sale Scheme - you identify and record the VAT at the time of sale. Apportionment Scheme
- you buy goods for resale. Direct Calculation Scheme - you make a small proportion of sales
at one VAT rate and the majority at another rate. Flat Rate Scheme: Usually, how much
VAT a business pays or claims back from HM Revenue & Customs (HMRC) is the difference
between the VAT they charge customers and pay on their purchases. With the Flat Rate
Scheme you pay a fixed rate of VAT over to HMRC, you keep the difference between what
you charge your customers and pay over to HMRC. You can't reclaim the VAT on your purchases
- except for certain capital assets over £2,000. To join the scheme your VAT turnover must
be less than £150,000 and you must apply to HMRC. Occasionally people make mistakes.
Hopefully this will never happen to you. You can adjust your next VAT Return to correct
past errors if they're below the error reporting threshold, not a deliberate error and less
than four years old. You can adjust your next VAT Return if the net value of the errors
is £10,000 or less. You can also adjust your next VAT Return if your error amount is up
to 1% of your box 6 figure (up to a maximum of £50,000). You must report the error to
HMRC if it's above these thresholds. You must report deliberate errors separately - you
can't include them in this calculation. If you discover an error made more than four
years ago you have to report this separately as well. When you submit your next return
you make the adjustment by adding the net value of the error to the appropriate boxes
on the return. You must keep details about the inaccuracy -- for example, the date it
was discovered, why it happened, how you corrected it, when it happened and include the value
of the inaccuracy in your VAT account. There is detailed guidance on correcting your VAT
Return in the HMRC notice 700/45. You can also contact the VAT Error Correction Team
if you need help making corrections. If you need to know more I'll give you the link later.
If you need further help you can sign-up to receive regular emails from HMRC. The emails
highlight the help and support we provide for small businesses. We have an online learning
package for newly self-employed customers. This includes practical case studies. You
can work through the package at home and at your own pace. We also have a number of webinars;
both live and recorded which you can sign up for. The live versions include the opportunity
to ask questions on the subject. The recorded versions don't include this but are available
24/7 and will cover the key points. You can sign up for these from the link on the HMRC
website. GOV.UK: Is the best place for Government services and information. Visit the website
for plain and simple help and guidance. You will find lots of 'bite-sized' tax information
videos on our YouTube channel. For example there is a short video on the two new Simpler
Income Tax schemes for small businesses introduced in April. If you need reassurance, quick help
or are just interested in finding out more about a subject then this may be the option
for you. Twitter is an online social networking and micro blogging service. Follow us on Twitter
to receive official news and information. Each month HMRC's Press Office holds interactive
Twitter Q&A sessions. You have the chance to ask questions on a range of subjects. At
present there are over 70,000 followers with the number growing on a monthly basis. Some
of these then 'retweet' the messages received. As well as the @HMRCgovuk Twitter account,
we now have another account to give help to Small & Medium Enterprises -- or SME's for
short. Our tweets are more specific, focusing on the range of help and support we offer,
including webinars, emails, YouTube and e-learning. So, what will you do next? Here are some suggestions
and are good starting points in getting to grips with VAT - Now that you are registered.
Before I finish, ask yourself 'Am I keeping sufficient business records' and 'Are my receipts
what my customers need?' It's also a good time to 'sign up' for other free webinars.
That brings me to the end of this webinar Thank you for listening, I hope you have found
it useful.