Value added tax

How do I work out how much to pay?

If you computerise your accounts, then for most businesses the calculation is little more than pressing a few keys. The principle is very simple to understand, though for some sectors such as retail, with a mix of standard and zero rated supplies, the calculation can be complex. There are special arrangements to cover these businesses.

You buy supplies, at a price together with input tax. You sell goods or services, at a price, together with output tax. You deduct the input tax from the output tax and pay the difference to Customs and Excise (or receive a refund if the input tax exceeds the output tax).

At the end of each accounting period, you complete a simple one page form for Customs and Excise. This must be returned, and the money paid, within a month of the end of the accounting period (though you can have an extra week if you pay electronically).

In the past, VAT became payable as soon as you sent a sales invoice (even though you may not have received the money) and became deductible as soon as you received a purchase invoice (even though you may not have paid the money). You can still account in this way. However, you can also now account for VAT under the 'cash accounting scheme' which has the advantage that you do not need to account for the output VAT until you have been paid.