In the UK, businesses can only charge their customers VAT if their business has been registered for VAT purposes with HM Revenue & Customs (HMRC).
Once registered, businesses must charge VAT on all of their applicable goods and services – but are also entitled to reclaim VAT on any business-related goods or services they might have purchased.
It is important for VAT-registered firms to keep extensive records, as such businesses are required to submit VAT returns to HMRC once every three months and might need to recover any overpaid or incorrectly charged VAT from previous periods each time.
Businesses also need to make sure VAT returns and payments are always processed in good time – as HMRC’s existing penalties regime can prove to be somewhat severe.
Making Tax Digital for VAT is just around the corner…
To make things even more complicated, most businesses earning above the VAT registration threshold of £85,000 will need to completely change the ways in which they report to HMRC in less than a year’s time, due to the advent of Making Tax Digital (MTD).
MTD is the Government’s flagship project to digitise Britain’s tax system – and it is due to be rolled out for VAT from April 2019, before any other taxes are affected.
MTD for VAT will see VAT-registered businesses required to report to HMRC on a quarterly basis using ‘designated software packages’.
This means that affected businesses will need to be up-to-speed with storing and processing their records and financial information online using MTD-friendly software.
If you need help with any of the issues raised in this blog, please contact Rotherham Taylor today to find out how our expert team can help.