VAT basics: not your money
Lesson 9 of 13 in our free Business Money Basics guide: a 5-minute money game with the key points below.
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Questions you'll answer
Illustration: Mo's catering business is VAT-registered. This quarter: sales £24,000 before VAT, all standard-rated. Business costs £6,000 before VAT, all with standard-rated VAT. How much does he pay HMRC?
A customer pays £6 for something standard-rated, VAT included. How much of that £6 is VAT?
Mo's taxable sales for the last 12 months reach £91,500 this month. What does that mean?
Quick facts
- Fact: “The £90,000 VAT threshold is checked over any rolling 12 months, not just the tax year.” — Check it every month by adding up the last 12 months of taxable sales.
- Myth: “VAT you collect from customers is extra profit for the business.” — It's collected on HMRC's behalf and paid over, minus any VAT you can reclaim on costs.
- Fact: “Zero-rated sales still count towards the VAT registration threshold.” — They're taxable sales at 0%. Exempt sales are different and don't count.