How Do I Pay Someone Who Is Not VAT-Registered?
Are you trying to set up a new business? If so, one of the most important decisions you will have to make is whether VAT is for you. VAT stands for "value-added tax" and is sometimes called goods and services tax. If you do register, then your customers will have to pay for the appropriate VAT rate on the invoices so that you can make quarterly VAT returns and payments.
However, what happens if your company isn't VAT registered or a customer isn't registered, and they are trying to pay you? Let's find out today:
When and Why Is VAT Registration Needed?
VAT is a tax due on the sale and purchase of goods and services. In the UK, it is charged by the government, but the rate is set by the European Union (EU).
It is usually charged at a specific rate over and above the sale cost of a product or service. The point of having VAT is to tax the amount of value that has been added to a product or service at each stage of its supply.
For example, a cake producer will have to pay a certain amount of VAT on some or all of the ingredients and then charge that VAT to whoever is buying the cake. The customer will pay the seller the cost of the cake and the VAT, and the seller will then pay their corporation tax on their profits.
VAT is paid on goods and services sold to consumers within the EU. If an individual or a business is not registered for VAT, they will not be allowed to sell their goods and services to EU citizens.
How to Pay Someone Who Isn't VAT-Registered?
When you discover a price at which you would like to purchase something, you should always ask whether the price includes VAT. This will mean that you have to add VAT at the standard rate to the product or service that you purchase.
If the seller isn't registered with the VAT, then you will have to pay them a higher price to cover the VAT. It is not possible to recover the VAT from the seller, as that would be recovering a tax that has been paid.
Can I Get a VAT Refund on a Product I Purchase?
You may be able to recover the VAT that you pay on a purchase if the seller is VAT registered. You can claim a refund from the seller for the VAT that you paid. To do this, you need to submit a VAT invoice.
How Do I Register for VAT?
To register for VAT, you will need to fill out an application. Once you have completed this, you will need to submit it to HM Revenue and Customs (HMRC). They will then send you a VAT registration number called a VAT registration certificate. This will tell you that your business is now registered for VAT.
VAT can be a complex area and confusing. There are a lot of additional costs and fees that can be involved that can make it difficult to understand. It's essential that you understand how VAT works if you are considering selling goods and services in the UK. If you are struggling to grasp the concept of VAT or need help registering for it, don't be afraid to talk to your accountant about it. They can educate you on the importance of VAT and help you register for it so that you can operate your business legally and optimally.
1 to 1 Accountants is a UK accountancy firm offering services to small businesses and freelancers alike. If you need accountancy services to help you stay on top of VAT and more, work with us today!