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VAT Support

If you would like to attend our VAT Seminar where there will be a presentation on VAT and the benefits of registering, followed by coffee break and Questions & Answers relating to your business. Please contact us to book your free place now.

Value Added Tax (VAT)

Introduction

If your business' turnover is more than £64,000 a year, you will have to register with HM Revenue and Customs (HMRC) as a Value Added Tax (VAT) vendor and charge VAT on all goods and services that you provide. This involves some administrative effort on your part but also lets you claim back the VAT that you pay to suppliers.

What is Value Added Tax?

Value Added Tax (VAT) is a tax on consumer spending which applies to the value added to a product or service at each stage of its production and distribution. VAT is collected in stages by VAT-registered businesses (known as 'taxable persons'). The consumer pays the full amount of the tax but - at each stage up to that point - businesses handling the goods pay input tax to their suppliers and collect output tax from their customers. Businesses pay the net VAT collected to HMRC (or receive a refund).

The principles of VAT can be simply described in terms of three steps in the trading process:

  • You buy supplies at a price including input tax
  • You sell goods or services at a price including output tax
  • You deduct the input tax from the output tax and pay the difference to HMRC (or receive a refund if the input tax exceeds the output tax).
At the end of each VAT accounting period (usually each month or quarter), you complete a one-page form for HMRC known as a VAT return. This must be submitted, and the money paid, within a month of the end of the VAT accounting period.

What are the different rates of VAT?

There are currently three rates of VAT
  • The standard rate of 17.5%. This covers all goods and services that are not exempt, zero or reduced rated
  • The reduced rate (5%) is charged on domestic fuel and power as well as other domestic energy saving products. The renovation and conversion of certain buildings is also subject to the reduced rate
  • The zero-rate (0%) applies to specified categories of goods including children's clothes, exports outside the European Union (EU), food (not fast food, restaurant meals or catering supplies), books and newspapers. The advantage to you of goods being zero-rated is that they are still included in your taxable turnover, so you can recover your input tax.
Some goods and services are VAT-exempt.

If your product consists of both zero-rated and standard-rated goods (for example, food in a decorative container), there may be occasions when VAT will be charged at a proportional rate. HMRC has special schemes to assist retailers selling a mixture of standard and zero-rated products.

Do you need to register for VAT?

VAT registration is by taxable person, not by business. So if you have more than one business venture and if, between them, their taxable turnover exceeds the limits set down, you must register for VAT. You might be involved in different legal arrangements, for example you may be a partner in a business and also own your own company. These would count as separate taxable persons.

A taxable person must register for VAT if, at the end of any month within the previous 12 months, it has made taxable supplies over the current limit, or if it is likely that the next 30 days' supplies will exceed the annual limit. This limit is known as your business' 'taxable turnover', and following the 2007 budget, is set at £64,000.
If your business acquires goods with an annual value in excess of £64,000 from other EU countries, or supplies goods with an annual value of £70,000 under the UK's distance selling arrangements, you must register for VAT.

Registration is straightforward. Simply complete and submit form VAT 1 to HMRC within 30 days from the end of the month when taxable supplies reached £64,000, or within 30 days from the date when it became clear that taxable supplies would exceed the annual limit. Form VAT 1 is available from the HMRC website (www.hmrc.gov.uk).

Points to note about registration:
  • You will be assessed for VAT from the moment your turnover exceeds the limit, but you cannot start to charge VAT without a registration number - so don't delay your registration once you think that you will need to do it
  • You can register voluntarily for VAT even if your taxable supplies do not exceed £64,000, as long as you make taxable supplies. You will have to charge VAT on your sales, but will be able to reclaim VAT on your purchases. In general, if your customers are VAT-registered businesses, it will be worthwhile for you to register as well
  • Your business cannot register for VAT if it only makes exempt supplies
  • If your business' taxable supplies are zero-rated, you can apply for exemption from registration; this will mean, however, that you cannot recover input tax
  • If your business makes taxable and exempt supplies, you may be 'partly exempt'. Input tax will only be reclaimable on the inputs that go towards the taxable supplies. If some inputs are shared, they will need to be apportioned. If you think that you are in this position, seek advice from the VAT enquiry line.
Hints and tips
  • When you first register, read the VAT guide provided by HMRC. Look for the complicating factors like reclaiming VAT on fuel and exporting. If any of these apply to you, HMRC publishes an extensive list of fact sheets that can guide you further
  • When you first register for VAT, invite the VAT office to send round a representative to review your personal circumstances and ensure that you have a system in place that will serve your needs. If you have any queries, use the HMRC website or the VAT enquiry line for guidance
  • Don't fall behind in your VAT payments - it becomes expensive and it is distracting. You can even set aside the VAT from your customer payments as you collect them, so you know it is available to pay over when it is due
  • Keep accounting records for six years in case the VAT inspectors decide to audit you
  • Do not ignore HMRC reminders; they are an important sign that you are running into trouble
  • Discuss any problems promptly with your local VAT office
  • If your business has a complaint and it is dissatisfied with its handling by HMRC, you can go to an independent adjudicator.

Need to know more? We hold regular seminars and information sessions on VAT. When you are confident about the process one of our Business Development Officers would be happy to help you with the application process. If you are located in the Nottingham City area and are a new business or have not yet registered for VAT, contact us for further details.

Useful Contacts
HM Revenue and Customs
VAT National Advice Service
Tel: 0845 010 9000
Website: www.hmrc.gov.uk

HM Revenue and Customs
Business Support Team
Tel: 01332 724410
Website: www.hmrc.gov.uk/bst
 


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