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Moving your business to the UK? You’ll need to understand the UK’s VAT regulations

by Scott Brown | Nov 12, 2018
  • If you’re thinking of establishing a business in the UK, it’s essential that you understand how the UK’s VAT system works. Having a knowledgeable accountant working with you will not only ensure that your VAT is managed correctly and efficiently, but that you comply with HMRC’s rules.
    Business-concept

    How VAT works

    Value Added Tax or VAT is a tax that business owners need to pay to HM Revenue & Customs (HMRC) when selling/providing goods or services. You can only charge VAT on your goods if your business is registered for VAT.

    Generally, you will need to pay VAT regardless of whether your customer is a consumer or another business. What’s more, you’ll need to submit a VAT return to HMRC every three months. Your return contains information relating to the amount of VAT you’ve charged and the amount of VAT you’ve paid.

    See also: Why international entrepreneurs continue to choose the UK for business

    Knowing when to register for VAT

    Once your taxable turnover is more than £85,000 in a 12-month period, you must register for VAT. However, you also need to register if you expect to go over the threshold in a single 30-day period. Therefore, it’s important that you keep track of your revenue to see if sales are approaching the £85,000 registration point.

    What happens if you don’t register?

    Whether you fail to register through a genuine error, or simply choose not to do so, you may be liable for a penalty. The penalty fee is calculated as a percentage of the VAT you owe and increases the longer you refuse to pay it.

    Unsure of whether you need to register for VAT?

    Charging your customers the right VAT

    There are three different rates of VAT. The rate you charge depends on the type of goods and services your business supplies.

    Standard rate

    Generally, most goods and services will fall into the standard rate category. This is the rate you will charge unless the goods or services are classed as reduced or zero-rated. Currently, the standard rate VAT is 20%.

    Reduced rate

    If your products or services fall into this rate category, you’ll only charge 5% VAT. Examples of products that receive a reduced VAT rate charge are children’s car seats and domestic fuel and power.

    Zero rate

    As the name suggests, zero rate VAT is 0%. Most food, books, newspapers and children’s clothes will receive a 0% rate charge. However, there are some food items that are exempt from a zero-rated charge. These include alcoholic drinks, hot food and crisps, to mention just a few.

    Keeping your VAT records

    It’s important that you establish a good record-keeping system from the beginning. You need to keep a record of all your business transactions, as well as keep documents such as bank statements, sales and supplier invoices. HMRC may decide to audit your VAT Return and will require you to prove your sales and expenses.

    Need assistance with managing your VAT?

    Avoid the admin

    Many business owners opt to have an accountant manage all their VAT record-keeping and file their returns with HMRC. This way they relinquish themselves of all the admin and never have to worry about missing a deadline.

    Read more: How you can stop worrying and learn to love outsourced accounting


    Not sure if you should register for VAT? We can help you out. Send our SME accounting team an email and we’ll help you register VAT and assist with managing your VAT.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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