If you don’t have a clear idea of how VAT codes work, it could become more difficult to charge and pay the correct amount of VAT, which could leave your business liable to penalties and disrupt your cash flow.
According to a study done by Intuit QuickBooks, 19% of small business owners worry that they have missed something on their VAT return, while 18% are anxious that they have made a mistake on their return.
Although VAT related mistakes aren’t just limited to VAT tax codes, they are known to sometimes confuse business owners. Having a solid understanding of how VAT codes work (and how VAT works, in general) will help ensure smooth record-keeping and prevent any VAT related mistakes from being made.
In this article, we’ll try and explain what VAT codes are, when to use each code, and also provide a list of commonly used VAT codes.
When you file your VAT return digitally, you can expect to see a dropdown menu of different VAT codes that may be relevant to the types of goods and services your business sells.
Remember that as a general rule, VAT is set at a standard rate of 20%. It’s only in certain circumstances that your business may be eligible to pay a lower rate of VAT or be exempt entirely. Before you select a VAT code that’s different to 20.0 % S, it’s best to thoroughly read all of the details on the GOV.UK website so you can be sure you’re choosing the correct code.