VAT - an Overview

Author: Site4business.com

Value Added Tax is a very wide subject which, in its detailed implementation, affects different businesses in different ways. It is not, therefore, possible to present a complete guide here and you should take expert advice, normally from your accountant, to check how it applies in your case. However, the basic system is always the same, and the following is an overview of the general principles which will give you a good understanding of how it works.

Once you have sorted out how it applies to your business, and you have organised a system of record keeping to deal with it, VAT should not be a problem to administer. All the leading accounting software handles VAT accounting records automatically, and there are many helpful sources of advice to make sure you do it correctly right from the start.

What goods and services are subject to VAT?

All goods and services are potentially subject to VAT, but for VAT calculation purposes there are four categories:

• Standard rated.

• Reduced rate.

• Zero rated.

• Exempt.

Accounting for VAT. The extra record keeping

Once you are registered you will need to keep VAT records. But this is not normally a big task once you have a system set up and, as already stated, computer accounts programs do the maths for you.

Even if the accounting for VAT frightens you, calculate the savings to be made on expenses, and consider whether it may be beneficial to employ a bookkeeper for a few hours a week.

Taking over from die previous owner

If the existing owner is already VAT registered, you can: either apply to take over his registration or you can apply for a new registration in your name. It is always advisable to start a new registration in case there is any 'baggage' with the old one.

If the business is registered voluntarily, and you have concluded that you prefer not to register, there is no need to do so. The only difference is that as you are not registered the vendor will have to charge you VAT for any goods he sells to you that are subject to VAT. This would include VAT on any stock and assets you are taking over, as well as the price for the goodwill, and which could add substantially to the amount you will need to pay over at completion. It might pay to register for VAT for at least a while to be able to avoid such VAT being added to the business purchase costs, but you should take your accountant's advice on this.