V.A.T.

This section is to give you a basic understanding on VAT and the implementation of VAT

What
does VAT stand for?

VAT
stands for Value Added Tax. It is a tax on consumption and is
basically paid for by the end user.

Its
administered by HM Revenue and Customs (HMRC). Businesses charge tax
on their sales (input tax) and reclaim VAT on their taxable expenses
(output tax) they then pay to or reclaim from HMRC the difference.

The Rates and Allowances are available here

During
this module I am giving you an overview of the areas of VAT I’m
expecting you to experience and that in my years of practice I’ve
experienced the most frequent. You will never learn all aspects of
VAT and I would suggest you should learn a good overview of VAT and
know where to access more information if needed.




Double
entry bookkeeping for VAT registered businesses

We
looked in module 1and 2 how to do double entry bookkeeping I just
want to review this in particular to how VAT entries work.


Let’s
assume we have a sale of £200 plus VAT = £240 and the money was
paid to us, by our customer in cash our entries would be


If
we think back to our balancing of accounts in Double Entry Bookkeeping (Part 1) and the images of the scales


The
account above balances because we have a £240 debit matched by two
credits one for £200 and one for £40 (total £240).





Now let assume we have an expense to process and its a telephone bill for £100 plus VAT =£120 paid from
the bank




Here our credit of £120 is matched by 2 debits of £100 and £20 (total £120).

VAT
Receipts


If
you are VAT registered you
must
issue a VAT receipt when you provide goods or services. Also please
note that the VAT registration applies to the legal entity (i.e. if
you’re a sole trader then it’s all the sales made by the
individual that is VAT registered. You cannot run two sole trader
businesses and have one VAT registered and one not VAT registered)
you could however be a VAT registered Sole Trader and non VAT
registered in a different business as a Partnership or Limited
Company.


The
VAT you charge when you make a sale of goods or services must be paid
to HMRC on your VAT return form.


Any
VAT you pay during the course of your VAT registered business you
reclaim from HMRC on your VAT return form (if you have a valid VAT
receipt)

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