Turning into a VAT registered trader in the UK where vat is followed entails following uk vat rules and you should certainly check vat rate applicable on each product and service before you issue your very first vat invoice. Once you start issuing vat invoices then you should remember to charge, collect and file vat returns regularly to ensure that your business grows smoothly.
Most European countries have slowly switched over to vat as they want to ensure smoother cross-border trading while boosting revenues at the same time. It is the European Commission that has specified eu vat rules that are applicable on all eu countries that have adopted vat. However, specific vat rates are set up by each eu country including the UK albeit within the vat range specified by the European Commission.
If you are a trader in the UK and have just touched the vat threshold limit in taxable sales then you will need to turn into a vat registered trader and issue vat invoices to your clients. However, before you issue invoices, you will need to know the exact classification of your goods and services as specified by hmrc or Her Majesty’s Revenue and Customs department that handles the vat department in the UK, Northern Ireland, and the Isle of Man. There are around 14,000 classifications specified by hmrc and you will need to check applicable vat rates on each of your sales so that you can collect the correct amount of vat while also filing your vat returns without facing any problems in the future.
There are three basic vat rates applicable in the UK. The standard vat rates are pegged at 17.5% that will increase to 20% from January 4, 2011 onwards. The reduced vat rates applicable on certain goods and services are pegged at 5% while the final vat rates are pegged at zero percent. There are also specific goods and services including postal services, gambling services, etc that are totally vat exempt. While you can claim back standard and reduced vat rates, it is quite difficult to claim back zero vat rates if those goods or services were in another vat rate section previously. It is even more difficult to claim back vat on vat exempt goods and services, while there are still a few classifications that are outside the purview of the vat act.
There are similar vat rates applicable in other eu countries that follow vat too. Thus if you have already paid vat on any goods or services in another country then you can claim that original vat rate back by applying for vat refund. This process could take a long time and it would be advisable to allow your vat agent or consultant to handle the process so that your business costs can be reduced once your vat reclaim is successful. Your vat returns too will need to summarize your sales and purchases done at various vat rates depending on the vat scheme that you have chosen.
Once you turn into a vat registered trader in the UK then it is very important to be sure of the exact vat to be charged on each item of your vat invoice. You should also check your purchase bills to make sure that you are not overcharged by your suppliers. You should certainly check vat rate applicable on each product and service before you issue any invoice for the same since you might have a tough time rectifying your mistake if you end up charging the wrong rate.