VAT is a tax that you have to pay on many expenses and charge to your clients on top of your fee rate.
The current rate of VAT is set at 20%.
In your first month you charge a client £1,000 and you are VAT registered, you will have to add VAT on top of this at 20% this would be £200 making your total invoice £1,200.
During the month you have expenses that include £100 of VAT - say you bought a laptop for £600, £100 of this would be VAT.
You then need to pay £100 VAT over to HMRC (£200 VAT you charged to your client minus £100 VAT you paid on the laptop).
This is known as the VAT Standard Scheme.
There are three main VAT responsibilities you should understand:
1. You need to complete a VAT return every three months which is done online, and pay whatever VAT is due.
2. Each VAT return is due 1 month after your quarter end, so if your quarter ends on October 31 you have to submit your return by 30 November.
3. When you submit your return you need to make payment for your VAT, this gives you up to a month after your VAT quarter to make payment.
The 123 Way includes the preparation and submission of your VAT returns each quarter.
This information is for general information only. We take no responsibility for any action taken or refrained from in consequence of its contents. Always seek our professional advice specific to your circumstances before acting.