Hi! On this post, I’m going to be telling you about HMRC’s new website that makes paying VAT easier. Hopefully, this will enable you to get back to work sooner and make starting a business much less of a headache.
Do you know what VAT is? It stands for Value Added Tax, which is a tax that applies when goods or services are purchased from an EU country by someone living in the UK. The purpose of the tax is to level out the differences in costs between countries by charging buyers based on where they live rather than where products are made. This means that people living in countries with a higher cost of living pay more VAT.
HMRC, or Her Majesty’s Revenue and Customs, is the department within the UK government responsible for collecting taxes. They make sure that businesses pay the correct amount of tax on the goods and services they sell.
But why does VAT have to be paid? Because it is calculated at 20% of the price you sell things for. If you sell a product for £10, then you need to add on an extra 20 pence so that when your customer buys your product, he pays £10 plus twenty percent of £10 which comes out to be twenty pence = £10.20.
Things can get a little trickier when you are selling to someone in the EU. You’ve already added VAT, but because the country of destination is outside of the UK, you still need to pay VAT on top of that. This is where HMRC come in and make money from your price increase by recovering the VAT you are supposed to have paid.
If you are making products for or selling into other EU countries, then you will need to register with HMRC as either a trader or an off-shore supplier. These two types of business are what HMRC use to calculate your level of VAT incurred which they then charge for under their National Insurance scheme (NIC).
If you are registering as an on-shore trader, then you will be automatically registered as being an EU company with the UK HMRC, which is great. If you’re trading within the EU, then you are allowed to benefit from the virtually zero rate of VAT if your country is in the single market. This rate can range from 3% to 24%, depending on where your country is located.
If you are registered as an off-shore supplier or individual, then HMRC will work with your customs officials in the country of destination to help calculate how much VAT has been paid and collected on behalf of a UK customer. Do keep in mind that if you aren’t planning on selling to anyone in the EU, then you can go straight ahead and register with HMRC for VAT purposes.
With the advent of this new portal, all of this becomes much simpler. HMRC will now give off-shore trading companies a range of services to help them become more efficient and keep their VAT down as much as possible. They will also offer advice to traders on how to manage their VAT affairs and what data they should be reporting to HMRC. The portal will also provide an improved system for individuals or suppliers who are registered with UK customs officials to report the transaction details back to HMRC when paying into their NICs.
The new portal provides a great new service that is aimed specifically at small companies who are trading in the EU. Since VAT regulations can be quite complicated, this will hopefully make it easier for them to get back on track and deliver their service or product to their client as soon as possible. VAT legislation changes from time-to-time, so if you have any questions about how it works, you should ask your accountant or business advisor to help you better understand the ins and outs of these rules.
The HMRC website is www.gov.uk although you can also search for ‘how to pay vat’ on Google to see the new website which is very self-explanatory and user-friendly!
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