VAT Support
Please
contact: Yasmin Makki on 0115 9423772 for further
information.
Value Added Tax (VAT)
Introduction
If your business' turnover is more than £68,000 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 15%. 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 2009 budget, is
set at £68,000.
If your business acquires goods with an annual value
in excess of £68,000 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 £68,000,
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 £68,000, 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.
Pre-Budget Report 2008 - VAT Rate Changes
In his Pre-Budget Report on 24 November 2008 the Chancellor
announced that the standard rate of VAT will be reduced
to 15% on 1 December 2008.
This means that for any sales of standard-rated goods
or services that take place on or after 1 December
2008 providers should charge VAT at the new rate of
15%.
Only standard-rated sales are affected. There are
no changes to sales that are zero-rated or reduced-rated
for VAT. Similarly, there are no changes to the VAT
exemptions.
The 15% rate will remain until 31st December 2009,
and from 1 January 2010 it will revert to 17.5%.
The Government proposes to introduce anti-forestalling
legislation in Finance Bill 2009 to ensure that businesses
are not able to use artificial arrangements to reduce
the VAT rate on goods or services to be provided after
the rate reverts to 17.5% where there is no current
economic activity.
Genuine commercial transactions should not be affected.
Details are in the written statement to be made by
the Financial Secretary to the Treasury on 25 November
2008. This statement was also made in the House of
Lords by the Financial Services Secretary to the Treasury,
Lord Myners.
We have provided a range of information which covers
straightforward and technical issues for businesses,
and also likely questions from consumers.
'What’s New' was originally published on 28
November 2008 and includes more guidance about the
VAT Rate Changes effective from 1 December, and also
answers more questions which we have received.
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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