Whether you are already running a business or you are thinking of starting your own business, you will often find tax obligation to be challenging to get them done. One of the tax obligations that you will require to fulfil is paying the VAT tax. But what exactly is a VAT tax? Why should is it important? Well staying on top of your VAT obligations is not a hard thing as you may think. This article will give a detailed guide on what you need to know about the Value added tax and its importance.
Let's start by looking at what the UK value added tax really is. Well, VAT stands for value-added tax. This is the tax that is charged when a business sells its goods or services. Unlike other forms of taxes, the tax is collected by the business on behalf of the government. Most businesses pass the obligation of the tax to their customers by charging the customers an already set rate on top of the actual charges of the goods or services.
How does VAT tax work? When a customer buys the services or goods of a business they pay an amount that is equal to the value of the goods. The government through the business levies the customer a certain amount of money from the purchase of the goods. Therefore the customer not only ends up paying for the actual value of the goods but also pays a given percentage to the government when they spend. So the next thing that you should know is the rate of VAT. VAT tax varies depending on the type of goods a business offers. For example, most products will fall under twenty percent, while others like energy and gas supplies under five percent. Others might even be charged zero percent like children’s clothing, food and newspapers.
When should you charge VAT as a business? As a business, it is important to know when you should be charging VAT. There are a few tips that you should help you know when you should charge VAT. One is when the business is VAT registered. This is when the business should pay VAT compulsorily to the government. The other one is when the business has produced a taxable amount of goods or services. In such a case you should consider consulting the tax authorities whether the items are taxable.
Finally, the above are the things that you should know about VAT tax. Click here to know more about VAT: https://en.wikipedia.org/wiki/Value-added_tax.
