What is VAT?
Definition of VAT
VAT is short for 'Value Added Tax'. It's a tax on the sale of most goods and services.
HMRC collects VAT revenues through businesses who are registered for VAT.
Only businesses can be registered for VAT; individual consumers can't.
If you are registered for VAT, you must charge VAT to your customers on applicable sales. You may also be able to reclaim VAT that you pay on your purchases. You then pay the VAT you've charged to your customers, less any VAT you can reclaim, over to HMRC. In effect, you're acting as an unpaid tax collector.
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Not all businesses have to register for VAT. If your annual VATable sales are below the limit set by HMRC, you can choose to register, in order to reclaim VAT on your costs. If your customers are the general public, or small businesses that are not themselves registered for VAT, then if you register, they will see that as a price increase, because they won't be registered for VAT and so can't reclaim the VAT you charge them.
Submitting your VAT return online
FreeAgent automatically generates your VAT returns, reminds you when payment is due and then lets you submit your VAT returns online directly to HMRC.
Got questions? Ask Emily!
FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.