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How does VAT affect my business?

Every one knows that VAT is 20% but what does that mean to a business?  How does it work if you are VAT registered?

How does VAT work for a Business?

A VAT registered company works like this:

  1. If a company is VAT registered it must charge an additional 20% on all sales.This VAT income is collected when the invoice is paid.
  2. Every 3 months the company pays this VAT income over to HMRC (it's called a VAT Return).
  3. However, before the VAT is paid to HMRC the company will deduct any VAT that it has had to pay to it's suppliers.
  4. So normally most VAT income is passed on to suppliers and the remainder goes to HMRC.
  5. If a company has paid more VAT to suppliers than it has received from clients then HMRC will reimburse this VAT to the company.  So essentially a VAT registered company will never loose out on VAT.

A non-VAT registered company, or indeed a normal shopper (end-consumer) can not claim the VAT back and so are the ones at the end of the chain who end up with the cost of VAT.  This is the whole purpose of VAT - it's a consumer tax not a business tax.


Does my agency / client loose out if I'm VAT registered?

No!  If your business is VAT registered then your agency must pay VAT on top of your normal invoices but they will claim this back on their quarterly VAT return.  Most businesses are VAT registered so charging VAT is usually part of a normal transaction and will cause no problems.


Is it best to be VAT registered?

If your business is VAT registered you can claim back any VAT incurred on business purchases.  This is the main reason for voluntarily registering for VAT.


Do I have to register for VAT?

If your business turnover is more than £73,000 then you have to register for VAT.  If it's lower than this then you can register voluntarily.


Is there more admin work involved if I'm VAT registered?

Not - not if you are with Tempo.  We'll track all of your VAT and we'll produce and submit your VAT returns every 3 months.  You just need to make a VAT payment when instructed.


Does it cost more to be VAT registered?

Nope!  Although Tempo's fees are a little higher if you  are VAT registered you can of course claim the VAT back which actually makes them lower than a none VAT registered company.  So it will actually save you money.


Can I gain by being VAT registered?

Yes - Firstly you won't be loosing out from VAT on purchases and secondly you may gain even more by joining the flat rate scheme.


How do I become VAT registered?

Just let us know - and we'll complete the application for you as part of our service.