Value added tax (VAT)

VAT is a tax that is charged on most goods and services that certain businesses provide. If your gross turnover for the tax year is bigger than (or is likely to be bigger than) £85,000, you must register for VAT. Gross turnover means the income coming into your business before any deductions are made. You may also voluntarily register for VAT if you feel you would benefit from this. VAT on the purchases you make is known as ‘input tax’. The VAT you charge on the sales that you make is known as ‘output tax’. You will need to send HMRC a VAT return either monthly, quarterly or annually. You must give details of your input and output tax.

• If the output tax is greater than the input tax, you will have to pay the difference to HMRC.
• If input tax is greater than the output tax, HMRC should refund you the difference

Making Tax Digital for VAT

Making Tax Digital for VAT was introduced on 1 April 2019. This means that if your business has a taxable turnover above the VAT threshold of £85,000, usually you will need to:

• keep digital records;
• sign up for Making Tax Digital for VAT; and
• use software to submit your VAT returns. 

If you are already exempt from online filing for VAT, you will continue to be exempt under Making Tax Digital for VAT rules. You can also apply for exemption, if you are unable to adapt to the new digital service due to age, disability, location or religion. If your business is registered for VAT, but takings are below the VAT threshold, you do not need to use Making Tax Digital for VAT, but you can choose to do so voluntarily.