When it comes to running a business, understanding all the different taxation policies and regulations is probably the hardest part to deal with. There are a number of rules and exemptions you need to tackle to avoid making mistakes with your finances. Value Added Tax (VAT) is one of the key things business owners need to understand. To help you out, read our guide to VAT and discover whether resellers are required to pay it.
The Basics of VAT
VAT is generally charged on most goods and services that are provided in the UK by VAT-registered businesses. It also refers to imported goods and services from the EU as well as from countries outside the EU.
In the UK, there are three rates of VAT. Selecting the right one depends on the types of goods or services your business provides. The rates are:
- Standard 20% rate – this is the most common rate used in the UK
- Reduced 5% rate – examples of goods and services that fall under this rate include: domestic fuel and power, sanitary hygiene products, children’s car seats
- Zero 0% rate – some of the goods and services that are charged with the zero rate include: food (excluding meals in restaurants and take away), books and newspapers, public transport
On top of this, there are some goods and services that are completely exempt from VAT and outside the UK VAT system. The goods and services that are exempt from VAT include:
- Educating or training (certain conditions must be met)
- Fundraising events by charities (certain conditions must be met)
- Most services provided by doctors and dentists
- Selling, leasing and letting commercial land and buildings
It is still possible to register for VAT and to charge VAT from the above goods and services if you so wish to. This allows your business to reclaim any VAT paid themselves and therefore it is beneficial in some instances. This Simple Business article explains nicely the advantages and disadvantages of registering, so it might be worth reading.
When and How Do You Register for VAT?
Although it is possible to register for VAT even when you don’t have to, there are certain situations when it is necessary to register. In the UK, there are two main requirements for registering. These are:
- Your business turnover exceeded the VAT threshold limit in the previous 12 months. This limit is currently £81,000, but it can change annually.
- You believe your turnover is soon going to exceed this limit, for example in your current accounting period.
Registering is a relatively simple process and you can do it through HMRC’s website.
Your business might also temporarily go over the threshold. This might be due to a large-scale one-off deal and it is possible to ask for an exception for registering, according to TaxAid.org.uk.
Do Resellers Need to Pay VAT?
So if you are reselling goods as part of your business, the above information should help you understand when you need to register for VAT. In general, if you are doing it as a full-time business, you most likely fall under the scope of VAT. It is a good idea to discuss your particular situation with a professional accountant. As already mentioned above, you might not exceed the threshold, but reclaiming the VAT might still be more beneficial to your business. If you are unsure of your situation, you can contact us for more details.