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VAT

If you are VAT registered you’ll need to charge 20% on top of your invoice, which later gets paid to HMRC (or a lesser amount if you’re on the flat rate scheme).

When to register

You must register when you go over the threshold, or know that you will. The threshold is based on your VAT taxable turnover – the total of everything sold that isn’t VAT exempt.

Compulsory registration

You must register for VAT if:

  • your VAT taxable turnover is more than £85,000 (the ‘threshold’) in a 12 month period
  • you receive goods in the UK from the EU worth more than £85,000
  • you expect to go over the threshold in a single 30 day period

There’s no threshold if neither you nor your business is based in the UK. You must register as soon as you supply any goods and services to the UK (or if you expect to in the next 30 days).

You may have to register for VAT if you take over a business that’s already registered.

Late registration

You must register within 30 days of your business turnover exceeding the threshold. If you register late, you must pay what you owe from when you should have registered.

HM Revenue and Customs (HMRC) may also charge you a penalty, depending on how much you owe and how late your registration was.

Voluntary registration

You can register voluntarily if your business turnover is below £85,000. You must pay HMRC any VAT you owe from the date they register you.

Get an exception

You can apply for a registration ‘exception’ if your taxable turnover goes over the threshold temporarily.

Write to HMRC with evidence showing why you believe your VAT taxable turnover won’t go over the de-registration threshold of £83,000 in the next 12 months.

HMRC will consider your exception and write confirming if you get one. If not, they’ll register you for VAT.

You usually submit a VAT Return to HM Revenue and Customs (HMRC) every 3 months. This period of time is known as your ‘accounting period.’

The VAT Return records things for the accounting period like:

  • your total sales and purchases
  • the amount of VAT you owe
  • the amount of VAT you can reclaim
  • what your VAT refund from HMRC is

You must submit a VAT Return even if you have no VAT to pay or reclaim.

Capital Gains

Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value.

It’s the gain you make that’s taxed, not the amount of money you receive.

Example You bought a painting for £5,000 and sold it later for £25,000. This means you made a gain of £20,000 (£25,000 minus £5,000).

Some assets are tax-free. You also don’t have to pay Capital Gains Tax if all your gains in a year are under your tax-free allowance.

What you pay it on:

You pay Capital Gains Tax on the gain when you sell (or ‘dispose of’):

> most personal possessions worth £6,000 or more, apart from your car

property that isn’t your main home your main home if you’ve let it out, used it for business or it’s very large

shares that aren’t in an ISA or PEP
 
> business assets

These are known as ‘chargeable assets’.

Depending on the asset, you may be able to reduce any tax you pay by claiming a relief.

If you dispose of an asset you jointly own with someone else, you have to pay Capital Gains Tax on your share of the gain.

Capital Gains Tax allowances:

You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount).

The tax-free allowance is:

  • £11,300

Capital Gains Tax rates

You pay a different rate of tax on gains from residential property than you do on other assets.

You don’t usually pay tax when you sell your home.

If you pay higher rate Income Tax

If you’re a higher or additional rate taxpayer you’ll pay:

  • 28% on your gains from residential property
  • 20% on your gains from other chargeable assets
If you pay basic rate Income Tax

If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.

  1. Work out how much taxable income you have – this is your income minus your Personal Allowance and any other Income Tax reliefs you’re entitled to.
  2. Work out your total taxable gains.
  3. Deduct your tax-free allowance from your total taxable gains.
  4. Add this amount to your taxable income.
  5. If this amount is within the basic Income Tax band you’ll pay 10% on your gains (or 18% on residential property). You’ll pay 20% (or 28% on residential property) on any amount above this.