What is Value Added Tax (Guide 2022)?
Value added tax (VAT) is a tax on the value of goods and services that a company produces. It is an indirect tax levied on businesses, which means that it is collected by the government from people who consume or use the product or service. The VAT is collected from VAT-registered businesses by HMRC. Here is the online VAT calculator to calculate your VAT amount.
VAT registration is mandatory once businesses sell £85000 or more a year, or a voluntary registration can be made before then. If you try to do fishy activity and don’t get registered you will a fine from HMRC.
VAT is calculated differently in every member state, but it can be applied to most of the goods and services you sell. Rates may vary from supplying to supplying. It may be categorized into four categories.
Standard Value Added Tax Rate
Most of the goods and services have only 20% tax rate. It is the most commonly rate in the UK for goods and services. If you are registered for VAT, then you should charge 20% VAT from your customers in term of goods and services.
Reduced VAT Rate
The reduced rate for VAT is 5%. These are the some services or goods lies in this category
- Child car seats
- Domestic fuel or Power
- Many more.
You have to charge 5%, If you lie in the above mentioned goods and services from your customers.
Zero VAT Rate
Most of the services like children’s clothes and shoes, printing of brochure, aircraft repair and maintenance, newspaper, building services for disabled people, books and many other products should be 0% charged. You don’t have to charge any VAT percentage from your customers. Keep in mind to record these translations you have to submit these reports in VAT returns.
Some services and goods are vat exempted you don’t need to pay tax for these services. If your services are lying in these categories education and training, healthcare and medical treatment, financial services, insurance, property, building and many more then you are free from VAT. However, if you buy or sell an exempt item, you should still record it in your general business accounting