The most common question that sole traders ask is that do I need to charge VAT or register for VAT with HMRC. The answer depends in how much money do you make. If your annual turnover exceeds £85,000, you are duty bound to register for VAT. Below this threshold, it is purely optional.
Given your income is above sole trader VAT threshold, you will register in your own name. This is contrary to limited companies who register in company’s name. Sole traders cannot register with business name. You will register in whatever month your total yearly turnover sums up to exceed £85,000.
HOW DO YOU CALCULATE VAT PAYABLE?
You will have to charge VAT on goods and services that your business sells. This will be your taxable supplies. You can charge only if you are registered for VAT with HMRC. Unregistered businesses are not authorized to charge VAT. You are also likely to pay VAT on purchase of goods or services related to your sales.
You can reclaim from HMRC if the amount of VAT paid is greater than amount of VAT collected from sales. But if you have charged more than you have paid, you will have to pay the difference to HMRC. You will have to file VAT returns which is usually done periodically every three months. Either paying or reclaiming, you will have to declare how much you charged and paid.
The sole trader VAT registration forms are available online also. You will be issued a VAT registration certificate that will bear your unique VAT number and the date by which you must submit your returns. It will also bear your effective date of registration, that is the date you crossed the £85,000 turnover threshold.
WHAT VAT RATE SHOULD YOU CHARGE?
Most goods and services are charged at the standard 20% rate of VAT. You can pass on the charges to customers and price accordingly to still make desired level of profit. A reduced rate if 5% applies to certain goods and services category like fuel and energy, baby car seats and mobility aids installed at home for people above 60.
Certain goods and services are charged 0% or the zero rate. This includes books, food items and children clothing. The zero rate implies that the buyer will not have to pay tax when they purchase these goods but they are still taxable at your end. The sole trader VAT is sole trader’s duty meaning it is his job to find which rate he must apply.
It is also duty of sole trader – VAT registered only to show proper VAT information to the customers as well as file proper returns to HMRC. Certax Fitzrovia Ltd can help you with aid of experienced accountants in this tough area. You can contact us for further queries and assistance. Certax continues to uphold quality, accessibility and availability.
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