VAT is an abbreviation of Value-added tax. This is a kind of tax that you have to pay when you purchase products or services from some company. Different products have different rates for VAT. Some objects have lower rates, whereas others may have greater VAT rates. Some goods do not have to pay VAT. VAT Registration Services can help you register your company. There is a proper system for the registration of a company. Different service providers can help you register your company with complete ease. Let’s discuss VAT.
What is VAT?
Government has to provide various facilities to people. The main source of income for the government is the tax that people pay. Each country has a proper system for collecting taxes. It charges specific duties on different services and businesses. All the businesses and people having income in a particular range have to pay tax. The government utilizes this raised tax for the construction of roads, schools, and universities. It also consumes money for providing healthcare facilities, security, and many other services. There are different kinds of tax. VAT is a specific type of tax that people pay on purchasing services or different products. Different countries charge differently for VAT. All the companies produce products and announce the prices by combining three parts. They include production cost, profit, and VAT. These three parts collectively decide the price of a service or product.
How does it work?
VAT applies to almost all the items and services. All the goods and products that people purchase from different stores charge VAT. Government registers businesses for collecting this tax without paying any charges. For example, the government has established an institute for collecting tax, and it pays different employees for their services. On the other hand, VAT registered companies are an unpaid source of collecting tax. They charge a specific amount of tax on different products they sell and pass it on to HMRC. This helps various registered businesses to save money. It makes the whole process simpler and simpler. Businesses transfer the collected amount to the government. This is an effective and cost-friendly system of collecting tax. There are different mechanisms that the government has set for charging tax from different businesses. It has a complex system of calculations and formulae that departmental officers perform and ask the business owners to pay.
How to register for VAT?
When your company has reached an annual turnover of £85,000, then you should register your company for VAT. This is the VAT registration threshold. For registration, you have to apply to HMRC (HM Revenue and Customs). You can register your business online. You can do this yourself, and you have another option for registration. You can ask some agent or accountant to register your company on your behalf. They will charge for providing this facility. When you have completed the process of registration, you will get a VAT registration certificate within 14 days. It can take a longer time in some cases. You should complete the whole process as soon as possible. Hiring some agents for registration can be a suitable and reliable method. Agents know the complete steps and procedure. They know how to systematically tackle different matters. They can do this more efficiently as compared to you.
How much money does it raise?
For every government, there is a target for collecting tax in each category. They make specific calculations and predictions about how much they can collect from a particular category. VAT can also collect a particular amount. Governments have a database for different companies. They know how many companies are registered with them. For example, the government knows the number of industries and their production capabilities. It uses particular formulae to calculate the amount of tax that they can raise through VAT. UK has an office for budget responsibility (OBR). It predicted in March that VAT would collect £136.6bn in the year 2019-20. It is 16.8 % of all the amount of tax that government collects from different sources. VAT constitutes about 6.2% of GDP. It is the total value of goods that a country produces.
It has different rates in different years. For example, during 2015, its rate was 15% due to the financial crash. This was a temporary rate. Before 2011, it was 17%, and after 4 January 2011, it was increased to 20%.
Comparison with other taxes
We know that government collects funds from different sources. It charges tax from different businesses and organizations. There are different kinds of tax. For example, income tax, national insurance contribution, and value-added tax. Each tax category collects a different amount. Income tax and national insurance contribution are collecting the highest tax for the country. The third biggest tax collector is VAT. These three types of taxes collect more than half of the funds that a government collects through taxes. This has provided us a clue that what is the value of VAT. It is an indirect tax that people pay unknowingly. They pay this on purchasing services and goods, but they don’t know that they are paying.
How much UK pays for VAT?
You need to know the right rate of VAT for your products and services. It will help you charge it correctly. There are three rates of this tax. It depends on the type of service or products that you are selling. Different products and services have different VAT rates. You charge it from your customers after selling your products. These three rates are standard rate, reduced rate, and zero rates. Currently, the standard rate in the UK is 20%. They charge this on the majority of products and services. All luxury items and foods such as ice creams and confectionery fall in this category. They charge a reduced rate for some specific products such as domestic fuel, children’s car seats, and power sources. The currently reduced rate is 5%. Most foods, children’s clothes, books, and newspapers pay according to the zero-rate category. All essential items fall in this category.
The collection of taxes is essential for managing different matters of a government. You must register your company to become a responsible citizen. You can get VAT Return Services from 101Accountant. They can help you get registered to HMRC. It has qualified staff that can help you manage all the matters of VAT.