What are your VAT responsibilities when your business becomes VAT registered?  Do you know what they are when your business becomes VAT registered?

You take on responsibilities as an unpaid tax collector working for HMRC. If you do not comply with these responsibilities, then it's likely you will be relegated to HMRC's naughty step.  Above all fines and penalties are likely to follow.  We don't want that !.

In this week's podcast, we'll cover basics of your VAT duties so you stay out of trouble!

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Are you confused about VAT?

In this week's I hate numbers podcast, I am going to talk about

• The different types of VAT supplies, for supplies think turnover
• I will discuss the conditions that need to be met to claim back any VAT
• Reverse charging, and I do not mean collect calls
• Finally, I will cover how to complete a VAT return and when it should be submitted.

If you want a simple explanation of all things related to UK Value Added Tax (VAT), or business and finance then you are spoilt for choice! I have my weekly podcast, videos and blogs.

Conclusion

Moreover, if you want to understand your VAT responsibilities, avoid confusion and overwhelm , I am here to help.  In fact, many businesses find themselves in the same situation, wanting to know what their VAT responsibilities are, and how to avoid getting into VAT hot water!.  This podcast on An Introduction to what VAT is will help.

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When your business becomes VAT registered, you take on obligations and responsibilities as an unpaid tax collector working for the tax office. If you do not comply with these responsibilities, then it's very likely that you'll be relegated to the tax office's naughty step, with possible fines and penalties for your pleasure, and we don't want that. In this week's

I Hate Numbers Podcast, I'm going to talk to you about the different types of VAT supplies, and for supplies think turnover, the conditions that you need to stick to, to claim back any VAT that you pay out to your suppliers, reverse charging, and I'm not talking about collect calls, and finally, the VAT return, how to complete it and when it should be submitted.

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi folks. Welcome to another weekly episode of I Hate Numbers, the podcast with a mission to improve your financial understanding, improve your money mindset, make more money, save tax and time, and give you the business lifestyle that you desire. Let's crack on with the podcast. There are three types of supply in the United Kingdom, namely exempt supplies, outside of the scope of VAT, that's UK VAT by the way, and taxable supplies.

And within taxable, we break that down even further into zero-rated, reduced-rated, and standard-rated supplies. If you're thinking, why have all these classifications, this is not just to keep finance people happy, but it has a relevance for when you come to charging VAT, what goes into your VAT return,

and lastly, for claiming back any VAT that you've paid over to your suppliers. It's worthwhile remembering that in the role of VAT, your job as a tax collector is to charge your customers VAT where appropriate at the correct rate, to click that VAT from them, that's called output VAT, and you put that to one side.

You then have VAT that you are paying on supplies for your business, goods and services that you buy in. The VAT on that is called input VAT, and what we do at the end of each relevant period, we compare the VAT we've paid over, the VAT we've collected, work out the difference, and we either pay it over to HMRC, or we claim it back. More of that later on in the podcast.

Within the category of exempt supplies are typically insurance, postal services, and financial services. So, if your business is a post office, then the supply of postage stamps will be exempt. You will also have supplies which are outside the scope of UK VAT. Typically, exports outside of the United Kingdom will be classified as outside

the scope would also include things like the payment of wages, dividends, and taxes. Tax-full supply, which is one that is further broken down, constitutes zero-rated for which the rate of VAT is zero. That will apply to children's clothing, newspapers, foods, and medicine. There is reduced VAT, so the supplies of low-consumption electricity will attract a rate of 5%.

Currently, at the date of producing this podcast, the retailing of food by bars, cafés, restaurants, takeaways, will attract a reduced rate of VAT. And lastly, we have what's called standard-rated, and the easiest way to look at these is any item that you supply, which does not fit into any of the categories of exempt, outside

the scope, zero, or reduced-rate, is a standard-rated supply. What's the implications of those different supplies? I mentioned earlier on in the podcast, it affects three areas. The figures that go into the VAT return, what you can claim back in respect of VAT that you pay out to your suppliers, and also the rates that you're going to be charging on those particular services.

Later on the podcast, I'm going to be using the example of a newsagent’s, and to illustrate that when we come to completing our VAT return, and looking at what we can claim back. The general rule of thumb when it comes to claiming back VAT is that any supplies that you make, which are standard rated, any purchases that you make, which are connected to that sale, we can claim the VAT back.

So, typically in our fictional newsagent’s that has an alcohol license and sells alcohol, then any products, all the beers, and wines, and spirits that it buys in, they'll be VAT typically charged by the supplier. Its sales on that beer, wines, and spirits to its end customer, they'll be VAT charged on that, and we can, if all the other conditions are compliant with, claim back all the VAT. Any supplies that we incur in respect of outside of the scope,

we can claim the VAT on that. So, typically on exports, we can claim back the VAT on that, assuming those items would be taxable if they were made in the UK. If we incur any VAT in relation to exempt supplies, however, prima facie, that VAT is not recoverable. So, if your business in our newsagent’s

example, if that newsagent’s also had a post office license and it was selling postage stamps, those postage stamps are called exempt. No VAT is charged on them. But, if we had perhaps a bookkeeper who was employed to look after the books of the post office, any VAT charged by that bookkeeper, by that accountant would not be claimable.

If our newsagent’s sold children's clothing, so that's a very industrious, entrepreneurial type of newsagent’s. Children's clothing is zero-rated. Any costs in relation to selling those children's clothing that had VAT would be claimable. The other conditions that we need to be aware of when it comes back to claiming VAT is the documentation and the records that we maintain.

We think two of the main records that are lightly to float about, and those will be invoices that we issue to our customers. A customer invoice must have relevant details on there for it to be a valid VAT invoice. Those would include: the VAT number, an absolute must, the dates of the delivery of those goods or services, the description of what those goods and services are,

you can't just say it's goods, you had to be more specific in your wording, the address of the customer, your address, what the rate of VAT is that's being applied, the amount of VAT that's being charged, any discounts that you might be offering to your customers as well. The supplier invoices are effectively a mirror image, so we must see the supplier's VAT number.

We must see on that document the breakdown between VAT, the rate that's being charged, the address of the supplier, and the description of the goods and services. If you purchase items of what's called a relatively modest low value, up to 25 pounds, the only thing that you need to have really is confirmation, somehow, that your supplier is VAT registered.

If not, if you ever have a VAT inspection, you'll be expected to pay back that VAT with interest and penalties on top. So, we talked about the different types of supplies. We talked about the conditions for claiming back VAT. I now want to talk about what reverse-charged VAT is. Now, reverse-charged

VAT is where you act as both the supplier and the customer. You charge yourself the VAT, and then you claim it back as input that is subject to the normal rules. Now, governments like it because it reduces the level of VAT fraud and evasion, and when your business applies reverse charging the responsibility

shifts to your customer. It's like a reverse-charge collect call where the bill payer picks up the tab. Now, it's important to remember, there's no money that actually changes hands. It's just an accounting measure. So, where you purchase goods from overseas, perhaps you have got a marketplace in Holland, you employ the services of a Dutch supplier who's going to do some SEO translation work for you.

They raise an invoice to you, assuming the value of their services are a thousand pounds. If that service was provided in the United Kingdom, at standard rate, you would pay 20% VAT or 200 pounds. If the invoice, though, is a reverse-charge one, and it must state so on the invoice from the supplier, then you act effectively as the supplier and the customer.

You recall that invoice in your VAT return, add 200 pounds to the relevant box, and take off 200 pounds to the relevant box as well. Remember, there's no money that changes hands. It's the accounting that's important. Bear in mind, things like Google Ads, Facebook ads are common examples of services that we buy that are subject to reverse charging.

Folks, what I'd like to conclude with now is to look at the VAT return, the dates and the obligations in respect to that. Normally, for most VAT-registered businesses, every three months at the end of a VAT quarter, a VAT return will have to be prepared. This essentially summarises the transactions that have occurred during the last three months, and there are nine boxes in a VAT return. For most businesses that are VAT registered,

software or accounting systems will capture the information that goes into the VAT return, but it's your responsibility to make sure the figures in the boxes are correct. If you don't have an accounting system that does that, if you haven't gone digital, then that's a real big oversight. Check out the show notes at the end for a couple of links to some articles and resources on accounting systems.

In your VAT return, there are nine boxes to complete and they are as follows. Box number one is where you record your output VAT, and that's the VAT that you've charged on the services, the supplies you've made to your customers. It also includes the output VAT from reverse charging. Box number two will apply where VAT is due on acquisitions on Northern Island goods, and it refers to overseas activities, and overseas refers to anything outside of the United Kingdom.

For a simple VAT return where you are all UK-based, box two can be ignored. Box number three is just box one and two figures added together. Box four refers to your input VAT, and that's the VAT you are claiming back on the supplies that you've purchased, and the VAT from any reverse charging invoices.

Box five is a difference between boxes three and four. If, for example, you have charged 5,000 pounds worth of VAT to services you supply to your customers and you've incurred VAT on supplies that you've purchased to the value of three, then you have to pay over to HMRC 2000 pounds. It can work the other way round.

You may have a quarter whereby the output of VAT is less than the input of VAT. In that case, a refund will work its way into your bank account. Box number six is the total of your taxable and exempt supplies. It will include also the reverse charge value. Do not include VAT in box six, by the way. It's the value of those supplies excluding VAT. Box seven is the total value of all your purchases.

Again, leave out the VAT from those items. Box number eight are supplies to the EU member states, and box number nine is acquisitions from EU member states. Again, if it's a simple VAT return in the sense that all your customers and suppliers are in the UK, box eight and nine is of no relevance. Finally, you must submit that VAT return within one month and seven days after the end of your VAT quarter.

So if your quarter date runs between the 1st of June and the 31st of August, your VAT return will summarise and have figures going to those potentially nine boxes, you must submit that VAT return by the 7th of October, 2021. And you must also make sure any monies that are owed are paid by that date as well.

Nowadays, unless you have some exceptions, all VAT returns are filed digitally and online. There are some exceptions. So, if you are a Quaker, for example, then you don't need to file a VAT return electronically. Hi folks. I hope you've got some value from this podcast. I'd love it if you could subscribe to the podcast.

If you've got any thoughts and feedback on the podcast, I'd love to hear from you. If you've got any thoughts for what you'd like covered a future episode, I'd love to hear from that as well. Until then, have a fantastic week ahead. We hope you enjoyed this episode and appreciate you taking the time to listen

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