Making Tax Digital (MTD) is an initiative to modernise the way businesses in the UK send their VAT return. It has been introduced by HMRC to help improve efficiency, reduce error and make it easier for businesses to comply with their VAT obligations. A business registered for MTD will need to submit its VAT returns digitally using cloud based software such as Xero or Quickbooks.
Reclaiming VAT is an easy and cost-effective way to reduce your business’s tax burden. It works by allowing businesses to claim back the VAT paid on purchases made during the year. To do this, the business owner will need to list all of their purchases and the corresponding prices. Once it has been verified that the items have been used in the business, a refund will be issued.
Most goods and services are subject to VAT at the standard rate of 20% however some goods such as energy saving materials, woman’s sanitary protection products and children’s car seats are known as reduced-rate items therefore are taxed at a lower rate of 5%.
Zero rated items are products or services that do not incur VAT. These items include food and drink, books, and public transport. They also include certain types of medical care, such as health insurance premiums.
Companies must register for VAT if they meet the annual VAT threshold (currently £85,000). There are two tests a business can apply to determine whether they need to register for VAT.
- The Historic test – the value of taxable turnover the business has made in the past year exceeds the Annual VAT threshold.
- The Future test – the taxable supplies expected to be made in the next 30 days will exceed the VAT threshold.
If you need help signing up for MTD or need advice on what you can and cannot claim, contact us today for a free consultation.
Francis Fabrizi
Accountant
Keirstone Limited
