To find out whether you need to be VAT registered you need to calculate your VATable supplies. This isn't as straight forward as it initially seems. Under UK VAT rules you need to add Adwords expenditure onto your turnover in calculating your taxable supplies. The current registration threshold is £67,000 of taxable supplies for the preceding 12 months (threshold applies from 1 April 2008). If you meet or exceed this threshold you are legally required to register for VAT.
Adsense:
Adsense income and non UK/EC income (eg US, Gibraltar etc commissions) are excluded from this calculation as they are “out of the scope of UK VAT”.
Adwords:
Even though you do not pay VAT on Google Adwords and therefore have nothing to reclaim, it must be included in your VAT Return as it is an advertising service. Advertising services received from other EC states (e.g. Ireland) come under the reverse charge rules.
What to include on your VAT Return:
Box 1 - In addition to the VAT you have charged on your UK sales you should add the “deemed VAT” at 17.5% of the Adwords invoice value.
Box 4 - In addition to the VAT you have been charged on your UK purchases/expenses you should add the “deemed VAT” at 17.5% of the Adwords invoice value.
As you can see the additional figures included in Boxes 1 and 4 cancel each other out and do not increase the VAT due to HMRC unless you have exempt/partially exempt sales as the rules restrict the amount of input tax you can reclaim. Partial exemption is not covered in this article.
Box 6 - Add the net Adwords costs to your sales figure.
Box 7 - Add the net Adwords costs to your purchases figure (if you are using a computerised accounting system, check your figures to make sure that the Adwords costs are not double counted).
As Adwords are advertising services and not goods, the figures do not need to be included in boxes 2, 8 and 9.
What to do next:
At the end of each month you need to calculate your taxable supplies for the previous 12 months. Its quite straight forward. If you have exceeded the VAT threshold you will need to register for VAT with HMRC within 1 month.
Adwords And Your VAT Return: A Guide For UK Businesses - To learn more about this author, visit Keith Silman's Website.
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Keith Silman
(Visit Keith's Website)
I am Managing Director of HRBS Limited, a
firm of pro-active, fixed fee accountants
based in South Yorkshire, England.
I qualified as a Chartered Accountant with
international firm Arthur Andersen and
have over 20 years experience as an
accountant and tax advisor, Business
Consultant, Finance/IT director, Small
Business Advisor/Mentor and Quickbooks
trainer.
I am a highly experienced Quickbooks
authorised Professional Advisor having
designed and implemented Quickbooks
systems for over 13 years.
My mission at HRBS is to provide high
quality, pro-active and hands-on
accountancy and business services to
individuals, partnerships, small and micro
businesses. I believe that small and micro
businesses deserve high quality, hands-on,
knowledgable business support and we have
built a solid reputation by providing a
professional and cost effective service to
our clients.
Find out more by visiting our website at
HRBS.biz.
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