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VAT stands for Valued Added Tax in the UK, it's added to the prices of goods and services you sell.
For most goods and services, the standard VAT rate is 20%. However, a 5% VAT rate is applied to some health, energy, heating and protective goods and services. 0% is applicable for a range of goods and services including health, building, publishing, and kids' clothing.
It's also important to note VAT is exempted on certain things, such as public postal services, insurance, educational training, and residential renting. Also, some things are “outside the scope”, such as taxes, salary payments and sales to outside the EU.
When to register for VAT
Some businesses in the UK are required to register for VAT, some are not, and others can choose whether to register or not. The VAT registration threshold is £85,000.
- You're required to register for VAT if the business's annual turnover is above £85,000, or you expect turnover to exceed this threshold in the next 30 days. Otherwise, you may be fined if you don’t register.
- Businesses that sell exempt goods and services are not allowed to register for VAT.
- If your business's annual turnover is below £85,000, you can choose to register for VAT voluntarily.
VAT return due date
Once the business becomes VAT registered, it's required to make quarterly VAT returns to HMRC.
VAT returns due dates are one calendar month, and seven days after the end of the accounting period. However, the specific dates vary for businesses because businesses can choose their VAT quarters at the time of registration.
The timetable for VAT returns covers 12 months, but it may not correspond to calendar quarters. Maintaining track of your timeframe is therefore essential.
Filing VAT returns and MTD
Make Tax Digital (MTD) means you must use software recognised by HMRC to submit VAT returns, such as Xero. Manually submitting VAT returns is no longer possible.
You can file your VAT returns using Make Tax Digital-compliant accounting software such as Xero or using bridging software. See more information on gov.uk.