When setting up in the UK, Paul Beare explained the differences in the UK tax system and becoming VAT registered to attendees of the UK Department for International Trade event held recently in Melbourne.
Value Added Tax (VAT)
VAT is similar to GST, however, there are many differences. UK VAT is a general rate that currently stands at 20%. Registration for VAT is compulsory once your turnover threshold reaches £85,000 however you might want to register from day one. This will depend on whether you have a potential client in the UK or tendering for a project. If this was the case then you might have to become VAT registered in which case, we approach HMRC and explain the situation and detail that there are plans for growth.
Once you are VAT registered, you must charge VAT to your customers, and in turn, charging VAT results in you being able to reclaim some of your input. Most businesses can generally recover the VAT from HMRC in full, although there are some exceptions such as banks and insurance companies.
When dealing with the public, VAT has to be included in the price, unless your terms of trade stat that VAT will be added.
All VAT-registered businesses must complete VAT returns and if you use a cloud-based software such as Xero, that is now compliant in the UK for making tax digital which is similar to BASS. It is exactly the same concept however it captures all the required data straightaway.
VAT Registration must be applied for, and there are rules around when this should happen. This is explored further here.
Other interesting information around VAT can be found here: UK VAT explained: Cash vs accrual accounting.