If your company is on Standard VAT then yes.
You can do this in your mileage log by selecting your vehicle’s engine type against a mileage entry. This applies to all car and motorcycle journeys made. Going forward, all new entries made will automatically have your vehicle’s engine type set. This will then be added to your next VAT return to claim back VAT using the HMRC Advisory fuel rates for that period.
Don’t forget that with any VAT claim you should have a corresponding receipt with enough VAT to cover the claim, this includes any fuel receipts.
If your company is involved in more than one business sector and you use the Flat Rate Scheme for VAT, the flat rate percentage to apply is the one that represents the greater part of your turnover. You then apply that percentage to your total turnover – i.e. you don’t use different percentages for each source of income.
Should you be planning to diversify your business and provide services in multiple business sectors, please contact your Account Manager to discuss before making a start.
If you are unsure about the treatment of VAT on sales and services to your clients in the EC, please contact your account manager.
Countries that are within the UK for VAT purposes
The UK consists of England, Northern Ireland, Scotland and Wales and are all subject to VAT.
Although the Isle of Man has its own VAT authority, sales to the Isle of Man are treated the same as any other sale made within the UK and are therefore subject to VAT.
Countries and territories that are part of the EC fiscal area for VAT
EC Country code shown in brackets.
Czech Republic (CZ)
Denmark (DK), except the Faroe Islands and Greenland
France (FR), including Monaco
Germany (DE), except Busingen and the Isle of Heligoland
The Republic of Ireland (IE)
Italy (IT), except the communes of Livigno and Campione d’Italia and the Italian waters of Lake Lugano
The Netherlands (NL)
Portugal (PT), including the Azores and Madeira
Slovak Republic (SK)
Spain (ES), including the Balearic Islands but excluding Ceuta and Melilla
United Kingdom and the Isle of Man (GB)
Countries outside of the EC
The Aland Islands
The Canary Islands
The Channel Islands
The overseas departments of France (Guadeloupe, Martinique, Réunion, St. Pierre and Miquelon, and French Guiana)
The Vatican City
The amount of VAT to pay HMRC when using the flat rate scheme is calculated by taking your gross sales (the amount including VAT) and multiplying it by your flat rate percentage.
Cash or invoice accounting
There are two methods of calculating VAT, one based on invoices raised during the VAT period and another based on the cash received in the period. For simplicity we’ll call them ‘invoice accounting’ and ‘cash accounting’ respectively. Depending on the method your company uses for Flat Rate VAT, the calculations are slightly different.
The basis of the calculation of your VAT returns is, if your company uses invoice accounting then you sum the gross value of all the invoices raised during the VAT period and multiply the total by your flat rate percentage. If using the cash accounting method then you sum the income (cash) received during the period and multiply it by your flat rate percentage.
Indigo Advisors Ltd is an IT consultancy business that made sales of £10,000 + VAT during its VAT quarter. It charged its clients 20% VAT on its sales of £10,000 which is £2,000 of VAT. Its gross sales for the period were therefore £10,000 + £2,000 = £12,000.
Indigo Advisors Ltd is an IT consultancy with a flat rate percentage 14.5% and it uses cash accounting. Based on its gross sales of £12,000 the VAT due to HMRC would therefore be £12,000 x 14.5% = £1,740.
This means that Indigo Advisors Ltd has charged its clients £2,000 VAT but pays HMRC £1,740. The difference of £260 is retained by Indigo Advisors Ltd to cover the VAT it has paid on its purchases and expenses during the VAT period.
First year discount
During your first year of being VAT registered, HMRC give a 1% discount on your flat rate percentage to cover additional startup costs. If for example your flat rate percentage is normally 14.5%, the flat rate percentage for your first year of VAT registration would be 13.5%.
Claiming back VAT
On your day to day expenses and purchases you will not claim back VAT – this is covered by the difference between the 20% VAT you charge your clients and the VAT you pay HMRC based on your flat rate percentage. This is why if you incur a large amount of expenses the flat rate scheme may not be ideal for you.
You can however in some circumstances claim back VAT on capital purchases over £2,000.
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Being VAT registered is often advantageous as it allows you to recover VAT on your business expenditure.
If your taxable turnover is expected to exceed the current VAT registration threshold it will be mandatory to register for VAT. Even if you expect your taxable turnover to be below the threshold, you can, and probably should register voluntarily.
When to register
In general VAT registration is normally advantageous when supplying services to other businesses (B2B). There are more advantages than disadvantages and your business customers won’t object as they themselves will probably claim back any VAT you charge.
Day to day you will incur expenses including VAT and being registered will allow you to lower your tax bills. Being registering may also mean you can access the flat rate scheme which is a great way for contractors, freelancers and small businesses to manage their VAT.
With our support and online accounting software, being VAT registered is effortless – our software makes light work of record keeping and we file your VAT returns each quarter.
When it may not be the best option
A situation where VAT registration may not be the best option is if you provide services direct to consumers.
Being VAT registered means you’d need to charge your customers VAT, probably at 20%. Your competitors, if not VAT registered, would be at a significant advantage by being able to charge customers less.
The following are the main VAT rates currently in force:
- Standard (20%) is charged on most purchases and expenses.
- Zero (0%) is for life necessities, e.g. train tickets, flights, books, newspapers, food (except hot prepared food to eat in or takeaway which is standard rated).
- Reduced (5%) is applied to domestic fuel & power, energy saving materials.
- Exempt (no VAT charged) is for transactions such as bank charges, postage, insurance, pension contributions and mortgage interest.
For detailed information on VAT and the rates, HMRC have a page that lists the goods and services along with applicable VAT rates that apply.