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,
for further details.
Useful Contacts
HM Revenue and Customs
VAT National Advice Service
Tel: 0845 010 9000
Website:
HM Revenue and Customs
Business Support Team
Tel: 01332 724410
Website:
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