When Should I Include VAT In My Prices?

If you’re running a business or company, then taxes are an integral part of keeping up with your finances. One of the main kinds of tax is Value-Added Tax (VAT), which is charged for the value of a product. 

There are a number of requirements when it comes to VAT – it’s important to be aware of them so you can be legally compliant. Read on to learn more. 

What Does VAT Stand For?

VAT is value-added tax. It’s charged to goods and services by being included in the overall price of the purchase. The term refers to adding an additional tax for the value of the item, after taking into consideration the amount needed to produce the product. 

How Much Is VAT In The UK?

Currently, the standard VAT rate is 20%. Rates are not permanent and can be subject to change, so it’s always a good idea to keep an eye out for any new information. 

There are also reduced rates for VAT (which is at 5%) and reduced or zero VAT rates for certain items. You can find more comprehensive information on what VAT rates apply for which items here. 

How To Calculate VAT

Calculating the price of something with VAT included requires some math. For the standard rate of 20%, the price of the item (without VAT) will need to be multiplied by 1.2 in order to calculate the price with VAT included. 

Example If you are selling a cake for £20 then the calculations for the VAT included price will be:  £20 x 1.2 =  £24

When Should I Include VAT In My Prices?

VAT should always be included in the invoice of a purchase. Once a customer has made a purchase, the docket they receive should not just have the purchase price and date. 

Rather, VAT calculations need to be included. This promotes greater transparency with consumers – make sure all of your invoices are compliant with this requirement.  

How To Register For VAT

Registering for VAT is required if: 

• Your business had a turnover of exceeding £85, 000 in the last 12 months, or is expected to in the next 30 days
• You or your business is based outside of the UK
• You are currently or expect to within the next 30 days supply good or services to the UK

If you meet one or more of the following requirements, then you need to register for VAT. 

In most cases, you are able to register for VAT online. The process will require signing on or creating an account with the HMRC through the Government Gateway tool and then filling out the relevant details. 

Once you have successfully registered for VAT, you will receive confirmation that includes any related information. You will also receive a 9 digit VAT number that will have the prefix ‘GB’ which will need to be included on any invoices. 

How To Find A Company VAT Number

If you are interested in finding the VAT number for a company, this can be done by searching through the online database. This tool can be handy when tracking down a particular company or seeing if one is registered for VAT. 

Registering for VAT is a legal obligation and not doing so can lead to serious consequences. 

What Other Taxes Should I Know About?

VAT isn’t the only tax companies need to be thinking about. Depending on your business, your income and the industry you are in, a number of different taxes are likely to apply. Some of these include: 

• Corporations tax
• Diverted profits tax
• PAYE
• Capital gains tax
• Income tax

If you need clarification regarding what taxes to apply for, it’s wise to chat to a financial professional or an accountant. 

Key Takeaways

It’s important to stay on top of your obligations regarding VAT (or any other tax payments). To summarise what we’ve discussed: 

• VAT is value added tax to goods and services 
• The standard rate for VAT is 20% however there are exemptions and reduced rates for certain products 
• VAT should always be included in the invoice of a purchase 
• If you qualify for VAT, you can usually apply for it online
• Once your application is successful, you will receive a 9 digit number
• You can also look up the VAT numbers of other businesses online
• Registering for VAT is a legal obligation 

If you would like a consultation on your obligations as a business in the UK, you can reach us at 08081347754 or [email protected] for a free, no-obligations chat.

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