VAT is an issue that many businesses have to take into consideration, although the recent rise in the VAT threshold from £64,000 to £67,000 has given small businesses some extra breathing space.
The current standard rate of VAT is 17.5 percent. This applies to the vast majority of goods and services. There are though a few exceptions. Here is a list of some of them;
- Children’s clothes
- Food (although this does not include confectionary, food eaten in cafes or takeaways and hot food purchased from take aways)
- Books and newspapers
- The construction of buildings
- Transport in vehicles that have a capacity of 10 or less
Paying VAT on time can sometimes prove difficult for businesses that have cash flow problems. The increasing culture of credit chasing in the country means paying VAT on invoices that have not yet been paid can be too much of a financial burden. For this reason, we recommend that businesses use the cash accounting system of paying VAT only on invoices that have been paid. This though is not an option if the annual turnover is in excess of £1.35 million.
Alternatively “the flat rate scheme” can be used where there is an annual turnover of up to £100,000. This allows VAT to be paid at a flat rate based upon what a likely VAT return would show.