Value Added Tax is something we have all heard of, but how many of us actually know what it entails? If you’re a business owner, it’s something that you should get to know, as it may impact your company.
Let’s break it down, to begin with:
VAT is a tax associated with goods and services. It is added to almost everything we buy day-to-day. The tax is based on a percentage of the cost of the product, which then goes to the government. There are different rates of this tax system, depending on what is being sold and what country you are in. For the most part, though, in the UK, for example, this is set at 20%.
Understanding How to calculate VAT has always been a source of frustration and worry for business owners, but now thanks to VAT calculators and online tools, this process is much easier and more accurate than before.
But how does VAT impact my business?:
Good news! If you are a business owner, you can claim back some of your VAT charges if it’s something you paid for as part of your business. For example, if you bought a laptop to do your work on, you can then get your VAT percentage back. You just need to keep proof of the purchase to then claim it as an expense when the time comes for you to declare your taxes to the government. For further ideas of what you can claim money back on in relation to your business, see here:
- Business travel – accommodation, fuel, parking
- Marketing – digital or traditional methods
- Employees – wages, team-building exercises, staff food, uniform
- Workplace – this includes items in the office, such as stationery, furniture, technology, etc.
Almost any payments made by your business could be eligible for tax relief, so it’s worthwhile to keep your finances meticulously ordered – you might find you are surprised by how much you can claim back.
VAT on Own Products and Services
If your business is earning over a certain amount, then what you sell will have to come with a VAT charge. This comes with its own set of responsibilities, meaning you need to ensure that all of your products or services that you sell include the cost of VAT. You’ll have to keep up-to-date VAT records as well as this and submit your tax returns to the government when needed. You must ensure that you’re always compliant with the rules involved with this, so it could be an idea to get accountancy software or reach out to an accountant to make all of the obligations crystal clear. This is something that you always want to get right; otherwise, you could find yourself in trouble further down the line.
Over time, VAT will become something that you have a better grasp of, but it can be a daunting prospect when your business is new. The main thing is that you need to keep on top of all of your business cash flow. This will mean that you can claim back what you can in the form of expenses and that you have records of the VAT on your own sales when you need to declare them.