VAT and PAYE
Value Added Tax (VAT)
VAT is a tax on consumer spending and will be collected on business transactions, imports and acquisitions. Most business transactions, for non-profits as well as for-profit organisations, will involve supplies of either goods or services and VAT will be added to the transaction.
Organisations are required to charge VAT when selling goods or services to either other business or to non-business customers. When a VAT registered organisation buys goods or services they will usually be able to reclaim VAT after the VAT have been paid.
Three different rates of VAT exists, depending on the goods or services the business will provide:
- Standard rated – 20 per cent
- Reduced rated – 5 per cent
- Zero rated – 0 per cent
Some goods and services will be exempt from VAT which is different from being zero rated, this is especially the case for many CASC and charity registered sports clubs in relation to facility investments.
Pay As You Earn (PAYE)
PAYE (pay as you earn) is the system used by HMRC to collect income tax and national insurance contribution from employees (in limited companies this will include directors).
As an employer, you'll have to deduct tax and National Insurance Contributions (NICs) from your employees' pay each pay period and pay Employer's Class 1 NICs if they earn above a certain threshold.
You pay these amounts to HMRC monthly or quarterly. If you don't send the correct amount, or if you send it in late, you may have to pay interest.
After the end of the tax year you must send HMRC an Employer Annual Return (form P35 and forms P14). Almost all employers are required to file this online.
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