How is VAT calculated?

The standard rate of VAT 20%. If the goods or services you are supplying are standard rated, then the easiest way to calculate the VAT that you must add is to divide the price (excluding VAT) by 5. For example, if you provide a service for £1,000 (excluding VAT), then the VAT due on this would be £1,000 divided by 5 which is £200. The total due by your customer including VAT would therefore be £1,200.

Are VAT refunds taxable? 

VAT refunds are not subject to tax. It is business income and expenditure excluding VAT which determines taxable profits. VAT is treated as an asset or liability of a business rather than a profit & loss account item.

Are VAT payments tax deductible?

VAT payments are not tax deductible.  It is business income and expenditure excluding VAT which determines taxable profits. VAT is treated as an asset or liability of a business rather than a profit & loss account item. Payments of VAT are normally made to reduce the VAT liability.

Can VAT be claimed on company cars?

You may be able to reclaim VAT on a new car, if it is used solely for the business (for which there are conditions that must be met) and it is not available for private use. Private use includes travelling to and from work, unless it is a temporary place of work.

Can VAT be paid in instalments?

Generally VAT due is payable when submitting each VAT return each month or quarter. Under the Annual Scheme for VAT, you must make advance payments towards your VAT bill (either monthly or quarterly) during your accounting period and a final payment when you submit your annual VAT Return. If you are struggling to pay your VAT liabilities, you can contact HM Revenue & Customs Business Payment Support Service and try to agree a time to pay arrangement spreading the liability over a few months.

Author: Luke Thomas, Director, Plus Accounting

Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.