Test your knowledge on VAT

Value Added Tax (VAT) is a tax that is charged on most goods and services that are provided within UK. It is also charged on goods and some services that are imported from countries outside the European Union (EU), and brought into the UK from other EU countries. VAT is charged when a VAT-registered business sells to either another business or to a non-business customer.

Business customers – for example a clothing manufacturer adds VAT to the prices they charge for clothes sold to a clothes shop
Non-business customers – members of the public or ‘consumers’ – for example a hairdressing salon includes VAT in the prices they charge members of the public

If you are a VAT-registered business, in most cases you:

• Charge VAT on the goods and services you provide
• Reclaim the VAT you pay when you buy goods and services for your business

If you’re not a VAT-registered business or organisation then you can’t reclaim the VAT you pay when you purchase goods and services.

When must you register for VAT

If you are a business and the goods or services you provide count as what is known as taxable supplies you will have to register for VAT if either:
• Your turnover for the previous 12 months has gone over a specific limit – called the ‘VAT threshold’ (currently £70,000)
• You think your turnover will soon go over this limit

You can choose to register for VAT if you want, even if you don’t have to.

When must you submit your VAT Returns online

You have to submit your VAT Returns online and pay any VAT due electronically if either of the following applies:
• you registered for VAT before 1 April 2010 and had an annual VAT-exclusive turnover of £100,000 or more for the 12 months ended 31 December 2009
• you registered for VAT on or after 1 April 2010 (regardless of your turnover)

In the case of the first group, you must continue to submit all your VAT Returns online (including nil and repayment returns) even if your turnover drops below £100,000 in the future.

From April 2012, all remaining VAT-registered businesses – those registered for VAT before 1 April 2010 with a VAT-exclusive turnover of less than £100,000 – will also have to submit VAT Returns online and pay electronically.

Rates of VAT

There are different VAT rates, depending on the goods or services that are being provided. At the moment there are three rates:

• Standard rate – 20 per cent
• Reduced rate – 5 per cent
• Zero rate – 0 per cent
• VAT Exempt

The standard rate of VAT is the default rate – this is the rate that is charged on most goods and services in the UK unless they’re specifically identified as being reduced or zero-rated.

* Examples of reduced-rated items include :

• domestic fuel and power
• installing energy-saving materials
• sanitary hygiene products
• children’s car seats

Please note that this isn’t a complete list of reduced-rated items and services.

* Examples of zero-rated items include :

• food – but not meals in restaurants or hot takeaways
• books and newspapers
• children’s clothes and shoes
• public transport

The list above are examples of goods and services that may be zero-rated, depending on the product itself and the circumstances of the sale

Exempt goods and services

There are some goods and services that are exempt from VAT. Exempt goods and services are not taxable for VAT, so if you supply them, then:
• you don’t charge any VAT on them
• you don’t include them in your VAT accounts
• you can’t normally claim back the VAT on related purchases

Goods and services that are exempt from VAT include:

• insurance (but there is an Insurance Premium Tax (IPT) that may apply instead)
• some services from doctors and dentists
• some types of education and training

If you sell or otherwise supply only exempt goods or services, you cannot register for VAT and you cannot charge VAT. If you buy exempt goods or services, you are not charged VAT so there is none to claim back.

If you sell some exempt goods or services and some goods or services that are taxable for VAT, your business is ‘partly exempt’ and you will only be able to reclaim VAT related to the VAT taxable goods and services you sell.

At present HMRC is very strict on matters relating to calculation and filing of VAT returns. Recently, there had been many cases where some small business owners were found guilty of VAT fraud. Thus these days, VAT investigations are aimed at identifying and investigating businesses that are on the wrong end of VAT. We advise all our clients to be extra vigilant on VAT to avoid unnecessary penalties and delays.

As VAT accountants serving in the area of Fulham, Hammersmith, Wimbledon and Kensington, we always keep a close eye on matters relating to VAT of our clients.

For a further discussion on matters relating to VAT, please get in touch with one of our experts

KVS & Co
Riverbank House, 1 Putney Bridge Approach, Fulham, London SW6 3JD
Tel No – 020 7731 6131
E mail – info@kvsaccountants.co.uk

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