Value Added Tax (VAT)
is a tax we pay on goods and services, and in the UK, it’s a crucial part of the economy. With the start of 2024, there are some important updates to VAT rules that you should be aware of. Let’s break down these changes in simple terms.
Increased VAT Threshold
If your business’s annual sales are below a certain amount, you don’t have to register for VAT. In 2024, this threshold has been raised to £90,000 from £85,000. This means if your business makes less than £90,000 a year, you might not need to charge VAT on your sales.
Example
Jane runs a small bakery with annual sales of £80,000. With the new threshold, she doesn’t need to worry about VAT registration this year.
Changes to VAT Rates
The standard VAT rate remains at 20%, but there are updates to the reduced and zero rates. The reduced rate for certain goods and services, like energy-saving materials, has increased to 5%. Meanwhile, the zero rate for items like children’s clothing and books remains unchanged.
Example
If you’re buying a new energy-efficient boiler for your home, you’ll now pay 5% VAT instead of the standard 20%.
Digital Services VAT Updates
For businesses selling digital services (like e-books, online courses, or streaming services), there’s a new rule: you need to show VAT separately on invoices. This makes it clearer how much VAT customers are paying.
Example
Tom runs an online course platform. He now needs to show £10 VAT separately on his invoices for a £50 course to make it clear to customers.
Changes to VAT Filing Deadlines
The deadline for submitting VAT returns has been extended from one month to two months for small businesses. This gives them more time to prepare and submit their VAT returns.
Example
Lucy, who owns a small consultancy firm, now has until the end of the second month after each VAT quarter to submit her VAT return, instead of just one month.
New VAT Rules for E-commerce
New VAT rules are in place for online sellers. If you’re selling goods to customers in the UK from outside the country, you must now charge VAT at the point of sale, regardless of the value of the goods.
Example
Alex sells handcrafted jewelry from her shop in France to customers in the UK. She now needs to charge UK VAT on each sale, even if it’s under £135.
Wrapping Up
These updates aim to simplify VAT processes and ensure fair tax practices. Whether you’re a small business owner or an individual, understanding these changes can help you stay compliant and avoid surprises.
If you need more personalized advice on how these VAT updates affect you, feel free to get in touch!