The Standard VAT scheme

If you have switched to the Standard Rate VAT scheme, from previously opting out of the Flat Rate VAT scheme, there are benefits of doing so.

You may be obliged to remain registered for VAT to be compliant for VAT purposes - there is a mandatory requirement to be registered for VAT if your turnover is above £85,000 (from April 2019).

From 1st April 2019, if you are VAT registered, with turnover in excess of £85,000, you are obliged to keep your records digitally through ‘MTD functional compatible  software’. 

Being VAT registered also provides assurance to any interested parties that you have a robust accounting framework in place on order to meet your financial responsibilities.

How do I calculate my VAT liability?

You will continue to charge VAT on the services you provide, however, the amount you pay over to HMRC VAT will be your sales VAT less any VAT on your business expenses.

If a purchase is also for personal or private use, you can only reclaim the business proportion of the VAT.

What are the rules when claiming VAT on your business expenses?

Firstly, the goods or services you purchase must be for business use and the seller must charge VAT on their invoice. If they are not registered for VAT, then there is no VAT for you to claim.

Also, you must retain the original VAT invoice (or an electronic version) in order for you to claim the VAT on any business expenses you incur.

You should also retain your VAT records for at least 6 years. Please note that you can’t reclaim VAT using an invalid invoice, pro-forma invoice, statement or a delivery note.

What constitutes a proper VAT invoice?

For invoices with a value below £250 and provided the supply is not to a person in another EC country a VAT invoice should contain the following information:

  • The supplier’s name, address and VAT registration number.
  • The time of supply.
  • A description which identifies the goods or services supplied.
  • The gross amount payable.
  • For each rate of VAT chargeable, the gross amount payable including VAT and the VAT rate applicable.

For invoices in excess of £250, VAT invoices must show:

1. An identifying number.

2. Supplier’s name, address and VAT registration number.

3. The time of supply (tax point).

4. Date of issue (if different to the time of supply).

5. Customer’s name (or trading name) and address.

6. The type of supply.

7. A description which identifies the goods or services supplied. For each description you must show:

  • The quantity of goods or extent of the services; the charge made, excluding VAT.
  • The rate of VAT.
  • The total charge made, excluding VAT.
  • The rate of any cash discount offered.
  • Each rate of VAT charged and the amount of VAT charged at each rate and shown in sterling.
  • The total amount of VAT charged, shown in sterling.

What vatable expenses can I claim?

  • Leasing a car. You can usually claim 50% of the VAT.
  • VAT on self-drive hire cars if you hire it for no longer than 10 days and it is used only for business.
  • Claim all the VAT on buying a commercial vehicle (e.g. van) if used only for business.
  • Claim VAT on your business mileage – you do need to keep a petrol receipt to evidence that mileage is actually incurred though.
  • Accommodation costs.
  • Accountancy and legal fees.
  • Stationery costs.
  • Advertising.
  • Equipment, such as laptops and printers.
  • Generally, if the cost relates to your business activity and VAT is charged on the supply, you will be able to claim the VAT element.

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