VAT For Beginners
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Most purchases carry a VAT charge. Value Added Tax (VAT) is levied on most
business transactions and on many goods and some services.
There are three rates of VAT in the UK:
- 17.5% (the 'standard' rate)
- 5% ('reduced' rate) and
- 0% ('zero' rate).
You will probably have to register for VAT if any of the following apply...
- The taxable turnover of your business in the previous 12 months reaches
the VAT registration limit (presently £67,000), although you can also register
on a voluntary basis if your turnover is below this.
- You believe your turnover in the next thirty days will exceed the
- You take over a business as a going concern whose turnover meets the
conditions in the previous 2 points.
- You buy goods from elsewhere in the EU to a value above the registration
limit in one calendar year.
There are penalties for failing to register on time.
Goods and services liable to VAT are known as 'taxable supplies'. Once
registered you must charge VAT on all taxable supplies.
VAT doesn't apply to everything. Supplies which are specifically not subject
to VAT are referred to as "‘exempt" and include insurance, financial services,
postal services, health and education, although there are exceptions in every
The amount of VAT payable to Revenue and Customs is the difference between
your output tax on your sales and input tax on your purchases. If input tax is
greater than output tax, a refund may be owed to you. The VAT due is normally
payable each quarter following the submission of a VAT return, although under
certain schemes the payments can be made monthly.
Should you register?
If your taxable turnover is below £67,000 you don't have to register but you
may be eligible to apply for 'voluntary registration'.
There can be advantages in registering such as...
- * increased business credibility;
- * potential savings if your supplies are zero rated but you can still
reclaim VAT on your purchases;
- * potential savings if you mainly supply other VAT registered businesses
who don't mind being charged VAT and you can then still reclaim VAT on your
This does however have to be weighed up against the hassle factor of
completing VAT returns, and paying the VAT due every quarter. If you supply the
general public you will probably not want to register as this simply puts your
prices up by 17.5%.
There are various VAT schemes, mainly for small businesses...
- Cash accounting - If your taxable turnover is under £1,350,000 a
year you can arrange to account for VAT on the basis of cash received and
paid, rather than the invoice date or time of supply.
- Annual accounting - You can complete one VAT return per year rather
that four if your turnover is under £1,350,000. You must also make nine
payments on account throughout the year, and a balancing payment with the VAT
- Flat rate scheme - This is for businesses with a turnover of under
£150,000 and saves on administration as you just pay a set percentage of your
VAT inclusive turnover based on your business sector, rather than accounting
for VAT on each individual "in and out". It can also reduce the VAT you pay in
- Retail schemes - These apply to retailers and offer an alternative
if it's not practical to issue invoices for a large number of supplies direct
to the public.
How We Can Help You
We can assist you with…
- registering for VAT
- advising on suitability of VAT schemes
- assisting with completion of VAT returns
- setting up your accounting system to deal with VAT
- representing you in any disputes with HM Revenue & Customs
- providing VAT planning advice for complex transactions such as when buying
About the Author
Jonathan Amponsah BSc FCCA is a UK Tax Expert and the founding partner of
A M P Associates –
A specialist firm of chartered certified accountants and tax advisers based in
London and Surrey. Jonathan advises on a wide range of business and tax issues
and he is recognized for his proactive and innovative approach to taxation.
Jonathan can be contacted on 0845 009 8845 or email:firstname.lastname@example.org
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Article Published/Sorted/Amended on Scopulus 2008-05-09 00:33:55 in Tax Articles