I have put a page on my website containing the Fuel Scale Charge table that you will need from 4 January 2011.
If your VAT period spans the change in rate, and most will, you will need to apportion the Fuel Scale Charge between the pre-increase part and the post-increase part of the period. You can find the pre-increase table on my website.
Notes on VAT for the newly registered business
This is the final part of this series of posts. Last time we looked at some important points on VAT on expenses and whether you can recover it. It’s time for the VAT return.
VAT return completion
This is on the basis that your situation is straightforward and not affected by partial exemption, or other VAT nasties, and that you are accounting for VAT in the standard way based on invoices issued and received.
| Box on VAT return | What to do |
| Box 1 | Put in this box the total of the VAT on your sales plus your Fuel Scale Charge VAT. |
| Box 2 | Put in this box the total of the VAT on purchases of goods or services you made from outside the UK where you gave your VAT number to avoid paying the local VAT rate. |
| Box 3 | This is the total of Boxes 1 and 2 |
| Box 4 | Put in this box the total of the VAT on your purchases. |
| Box 5 | This is Box 3 less Box 4 – if the result is a positive amount you owe that to HMRC, but if it is negative HMRC owe it to you. |
| Box 6 | In this box you put the value of your sales, plus the value of the Fuel Scale Charge you paid. |
| Box 7 | In this box you put the value of your purchases (but not those that are in Box 2). |
| Box 8 | In this box you put the value of any goods you have sold to business customers in other EU countries. |
| Box 9 | In this box you put the value of any goods you have bought from other EU countries. |
There you have it, in four parts, some basics on VAT.
If you have any questions leave a comment. I’ll be along to answer them later.
Notes on VAT for the newly registered business
This is, as the title suggests, the third in this series of posts intended to help the newly VAT registered business. Last time we looked at some basic VAT accounting points. We continue today with more of the same.
Cars
You have never been allowed to recover VAT on cars bought for your business use. A VAT inspector will always check to see whether a business has recovered VAT on the cars it has bought.
NOTE: before anyone has apoplexy, some businesses can recover VAT on cars they buy, but very few! And if the car is wholly for business use the VAT can probably be recovered.
So, you buy a car that is for an employee to use and you can’t recover the VAT – that’s a few quid tied up that you’ll never get back.
If you lease the car you can recover half the VAT on the leasing charge. Those last two words are important, because that doesn’t include any management or maintenance contract that might also be part of the deal – you can get all the VAT back on that.
What if you only need a car for a few days?
So long as the period of hire is no more than ten days, you probably can recover all the VAT.
As will all things VAT there are exceptions to the above.
Business Entertainment
What is business entertainment?
It’s providing hospitality for guests who are not your employees. Let’s take an example: You have a new product that you want to launch with a suitable fanfare so you organise a launch event. This event, you decide, will consist of a presentation, a chance for guests to see the product and handle it, refreshments before and during the presentation with a buffet afterwards. Doesn’t all that fall under marketing? So it’s fully recoverable, right?
Oh, I wish it was – but VAT isn’t the simplest of taxes.
You have to apportion input tax between the business entertaining element and the other parts of the event.
In the example above part of the costs are attributable to such as marketing and advertising. The input tax on these is recoverable. The cost of the refreshments and the buffet, however, are business entertainment. The input tax on these costs is not recoverable. Just because a cost can be defined as a legitimate business expense doesn’t mean you can recover the input tax.
What about the staff Christmas party?
This is treated differently from entertaining your customers or potential customers, or anyone who is not an employee. You can recover all the VAT on such expenses where only your staff are attending. If staff are allowed to bring guests you can only recover the VAT on the proportion of the bill relating to entertaining your staff.
Fuel
If you run a car on your business you can recover the VAT you pay on the petrol or diesel you put in your car. You will need, however, to account for VAT on personal use using the Fuel Scale Charge. This is a fixed amount of output VAT (you add it to the VAT you collect from your customers) that you pay each VAT period – the amount of VAT to be paid varies depending on various criteria.
Maintenance
You are able to recover VAT on the maintenance costs, e.g. servicing, of the car.
That’s the basics, so next time we’ll have a look at filling in the VAT return.
In the meantime if you have any questions leave a comment. I’ll be back to answer them.
Notes for the newly registered business
This is the second post in this series. Last time we looked at definitions. Now lets move on to accounting for VAT.
Accounting for VAT
How to get ready to do your VAT return
Preparing to do your VAT return is something that you should do regularly during each VAT period. This means that you need to enter your sales invoices in your books and records, and also keep track of all your expenses more than at the end of your VAT period! If you do this regularly, or have a bookkeeper who does it for you, it will make the process of doing your VAT return much simpler.
Sales
How you record these will depend on the type of business you are running. If you are running a retail business you will not generally issue invoices for every transaction. If you are running a business that sells mainly to other businesses, you will have to provide a VAT invoice for each sale so that your customers can recover the VAT you have charged them, if they are also VAT registered.
Matters can be a little more complicated/simplified if you are using one of the accounting schemes that make it simpler to account for VAT, such as the Flat Rate Scheme or the Cash Accounting Scheme. Neither of which removes the need for you to issue sales invoices, they just make it simpler to account for VAT.
It is recommended that you keep a list of all the invoices you issue. This would be a simple list showing the:
- date of issue;
- invoice number;
- customer name;
- value of the supply (i.e. the ex-VAT amount on the invoice); and
- the amount of VAT on the invoice.
At the end of each VAT period you add up the totals for the last two items. These account for entries in two of the boxes on your VAT return.
Purchases
How you record these will mainly depend on the type of accounting you do. The essential thing is that you record all your purchases and the amount of VAT on each invoice you receive, provided you are allowed to claim the VAT from HMRC.
Most important is that you get an invoice for most of the purchases you make. There are a few, very few, items where having an invoice is unnecessary – mainly because it is recognised that getting an invoice is nigh on impossible. More on this later.
Get into the habit of asking for a VAT invoice for every business purchase you make.
If you fail to get an invoice as often as you can you will be giving away money to HMRC because without the invoice you make it more difficult to justify your claim for the VAT on that invoice.
Remember there are things on which VAT is charged at the zero or reduced-rate, or that are exempt from VAT, so don’t just calculate the VAT you can recover on all the invoices you receive.
The VAT on your business expenses (input tax) is not always recoverable. You can only recover VAT on goods or services to be used in your business.
If you make exempt supplies, e.g. receive rent for a flat, you have another issue to deal with: Partial Exemption.
That’s enough for now. More information in a day or two.
In the meantime, if you have any questions leave a comment below and I’ll be back to answer it soon.
This is the first of a series of posts for newly or recently registered businesses. There will be another post in a day or two.
Definitions
First some definitions that will help you understand some of the jargon used by VAT inspectors, and by VAT advisers.
| Official term | Translation |
| Output VAT | This is what you charge to your customers and have to pay to HMRC. |
| Input VAT | This is what you are charged by your suppliers when you purchase goods and services, and which you can offset against the output VAT you have to pay to HMRC. |
| Taxable supply | This is the name given to a supply of goods or services on which VAT is chargeable at one of the three rates of VAT – zero-rate, reduced-rate and standard-rate. |
| Blocked input VAT | This is VAT that you are not allowed to recover from HMRC even though it is a business expense. |
| Exempt supply | This is a supply of goods or services which are exempt from VAT, and for which you generally cannot recover input VAT. |
| Exempt input VAT | This is VAT that you are charged by suppliers on purchases which are the costs of sale for exempt supplies you make. |
| Partial Exempt | This is the term used to describe a business that makes both taxable and exempt supplies, and generally indicates that the business might not be able to recover all the VAT it pays to its suppliers. |
| VAT Period | This is the time covered by your VAT return. Each return will tell you what period it covers. Usually it is a period of three months, but for some businesses might only be for one month. |
| Due date | This is the date by which your VAT return should be received by HMRC. If it isn’t you might be charged a penalty for failing to submit a return.
It is also the date by which you should pay HMRC any VAT due on your VAT return. The date of payment can be later than the due date if you do your returns online and pay by electronic means. |
| VAT Invoice | This is what you give to your customers when you sell them something, and what you get from a supplier when you buy something. It is important that you follow the rules on this as you need to make sure your customers can get back the VAT you charge them, and that you can get back the VAT you pay out. |
| VAT Fraction | A formula for calculating how much VAT there is in an amount paid where the VAT is not shown separately. |
Got any questions? Leave a comment and I’ll answer them.
