VAT and corporation tax

VAT and corporation tax is two different taxes administered by HM Revenue and Customs.

Your limited company is legally required to pay corporation tax if your company has made a profit and submit your corporation tax return with HM Revenue and Customs (HMRC).

If your limited company is registered for VAT with HMRC then your company is legally required to charge VAT to your customers and submit VAT returns to HMRC.

VAT

Let say, your company is selling children clothing, the applicable VAT rate is zero percent, your price for a pair of child’s trouser is £20 and the VAT rate for children’s clothing is zero percent. Your customer will pay you £20.

If your are selling website coding services, you would charge a standard VAT rate of 20% to your customers. Say, your project fee is £1000 and your invoice to your customer would be £1000 + 20% VAT and the final invoice price is £1200. The £200 collected is VAT. This amount is called output tax.

The £200 belongs to HMRC. Thus, your company is technically collecting the VAT on behalf of HMRC. Then, you report this output tax collection in your VAT return.

Corporation tax

Your company pay corporation tax on when there is a profit. Let use the website coding services business to illustrate how corporation tax is computed. Let say, your company only have one sale that is £1000 + 20% VAT equal to £1200.

When preparing your company account, you book only £1000 as your sale not the whole £1200 because the £200 of VAT belongs to HRMC and it is not your earning. Then you deduct any expenses you incurred to deliver the website coding services, say stationery cost of £150 (excluding VAT). Your profit is £850 (£1000 less £150). The current corporation tax rate is 20%, your corporation tax liability would be £170. Your company would report this tax liability in your corporation tax return called CT600 and submit it to HMRC.

HMRC published the current corporation tax rates .

No double counting of taxes

As you can see from the illustration above, your company would not pay double taxes on your business income. Basically, you collect VAT on behalf of HMRC from your customers. And, your VAT is excluded from your corporation tax computation.

VAT registration

UK company may opt to register for VAT voluntarily any time. However, some companies would wait until their sales reach the VAT registration threshold.

Generally, once you have registered for VAT, you must add 20% on top of your usual selling price.

When to register for VAT

If you already foresee your company is likely to make sales exceeding the VAT threshold in the first year of trading then you opt to register for VAT straight away.

HM Revenue and Customs requires companies to apply for a VAT number within one month of your company’s sales exceeding the VAT registration threshold.

VAT registration administration

Subsequently, your company may apply to join the VAT cash accounting scheme, flat rate scheme, annual accounting scheme if it is beneficial to your business to do so.

You must put in place a proper VAT accounting system to record your VAT transactions.

For example, the information you must enter into your sale invoice from your sales transactions. There are many easy ways to manage this. You may use online accounting software which comes with VAT invoice template. All you have to do is to fill in the information. The best part is that if you forgot any important details the software will prompt you to enter it. GOV.UK website recommends commercial software that meet the VAT return accounting.

Correspondingly, your company must submit VAT returns with HM Revenue and Customs. Usually, the submission deadline is within one month from the end of your VAT return quarter. The submission must be done online.

HMRC telephone helpline

HMRC telephone helpline if you have any questions about your corporation tax, self assessment, VAT, PAYE and payroll compliance, tax credits and so on.

HMRC stands for HM Revenue and Customs. They are the official Tax Authority in the United Kingdom. HMRC provide dedicated telephone helpline for specific tax related subject matters to help businesses and companies to deal with their tax matters efficiently.

Ensure you dial the correct numbers to avoid being transferred from department to department to reach the right person to speak to.

For general help, you may tweet with @HMRCcustomers.

HMRC department contact details

HMRC DepartmentTel Helpline
Self Assessment general enquiriesTelephone:
0300 200 3310
Textphone:
0300 200 3319
Outside UK:
+44 161 931 9070

Postal:
Self Assessment
HM Revenue and Customs
BX9 1AS
United Kingdom
Tax credits general enquiriesTelephone:
0345 300 3900
Textphone:
0345 300 3909
Outside UK:
+44 02890 538 192

Postal:
Complaints or change of circumstances
Tax Credit Office
HM Revenue and Customs
BX9 1LR
United Kingdom

New tax credit claims
Tax Credit Claims
HM Revenue and Customs
BX9 1HE
Child benefit general enquiriesTelephone:
0300 200 3100
Textphone:
0300 200 3103
Outside UK:
+44 161 210 3086

Postal:
HM Revenue and Customs
Child Benefit Office
PO Box 1
Newcastle Upon Tyne
NE88 1AA
United Kingdom
Income tax general enquiries and Marriage AllowanceTelephone:
0300 200 3300
Textphone:
0300 200 3319
Outside UK:
+44 135 535 9022

Postal:
Pay As You Earn and Self Assessment
HM Revenue an Customs
BX9 1AS
United Kingdom
National Insurance general enquiriesTelephone:
0300 200 3500
Textphone:
0300 200 3519
Outside UK:
44 191 203 7010

Postal:
PT Operations North East England
HM Revenue and Customs
BX9 1AN
United Kingdom
Employers general enquiriesTelephone:
0300 200 3200
Textphone:
0300 200 3212
Outside UK:
+44 151 268 0558
Fax:
03000 523 030

Postal:
PT Operations North East England
HM Revenue and Customs
BX9 1BX
United Kingdom
VAT general enquiriesTelephone:
0300 200 3700
Textphone:
0300 200 3719
Outside UK:
+44 2920 501 261

Postal:
HM Revenue and Customs
VAT Written Enquiries Team
Portcullis House
21 India Street
Glasgow
G2 4PZ
United Kingdom
Construction Industry Scheme general enquiriesTelephone:
0300 200 3210
Textphone:
0300 200 3219
Outside UK:
+44 161 930 8706

Postal:
PT Operations North East England
HM Revenue and Customs
BX9 1BX
United Kingdom

Courier documents to HMRC

Lastly, if you are going to use a courier service to deliver your documents to HMRC with PO Box and BX postcodes.

Please use the address below instead:

HM Revenue and Customs
Benton Park View
Newcastle Upon Tyne
NE98 1ZZ
United Kingdom

HMRC online service

Broadly, HMRC has dedicated technical support helpline to help with any filing problems you face.

If you have any technical issues please call 0300 200 3600. The number for textphone is 0300 200 3603. If you are calling from outside the United Kingdom call +44 161 930 8445.

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