YOU CAN START TRADING BUT YOU CANNOT CHARGE VAT UNLESS YOU ARE VAT REGISTERED

YOU CAN START TRADING BUT YOU CANNOT CHARGE VAT UNLESS YOU ARE VAT REGISTERED

The HM Revenue & Customs reference guide to VAT (Value Added Tax) “The VAT Guide” HMCE Reference: Notice 700 is downloadable from the .gov website.

CONTENT

WHAT IS VAT?
QUALIFICATION CRITERIA
RATE OF VAT
ZERO-RATED SUPPLIES
EXEMPT SUPPLIES
VAT AND INTERNATIONAL TRADE
VAT ON DIGITAL AND ELECTRONIC SERVICES
FOR FURTHER DETAILS

WHAT IS VAT?

VAT or Value Added Tax is a tax levied by businesses who supply goods or services in the United Kingdom.

VAt is also charged on goods coming in from outside the European Community (EC)

 Examples of taxable goods and services:

• The sale of new and used goods

• providing a service, for example, hairdressing and decorating;

• charging an admission price to go into buildings; or

• self-employed people are providing supplies, e.g. some salesmen and subcontractors.

QUALIFICATION CRITERIA

The following three factors play a part in determining whether or not you need to register :

• Taxable SuppliesThe supply of any goods and services which are subject to VAT at any rate, including zero-rated, are called taxable supplies. (Exempt supplies are explained (below)

• Distance Sales

Distance selling is when a taxable person in one European Community (EC) Member State supplies and delivers goods to a customer in another EC Member State and the customer is not: registered for VAT, or liable to be registered for VAT. The most common example of distance sales is mail-ordered sales.

• Acquisitions

If you are an organisation or business, and not a private individual acting in a purely personal capacity, any goods you buy from a VAT registered supplier in another EC country for removal to the UK are known as acquisitions.

If:

• Your taxable supplies, distance sales, or acquisitions are expected to exceed £70,000 in the next 30 days, or if you are already trading, and they have exceeded £70,000 in the past 12 months.

 • Or, if you have taken over a VAT registered business as a going concern.

Then:

You must notify your Customs and Excise VAT office immediately of liability to register for VAT. (See register online.)

If:

Your taxable supplies, distance sales, or acquisitions are not expected to exceed £85,000 in the next 30 days and have not exceeded £85,000 in the past 12 months.

Then:

VAT registration is not necessary for these circumstances, although businesses can register for VAT on a voluntary basis to be able to reclaim VAT on purchases. Anyone who registers will also have to account for tax on their sales, where appropriate. Apply online 

Different Rates of VAT

There are three rates:

RATE OF VAT

Also known as.

Applies to taxable supplies of.

STANDARD RATE 20%

most goods and services

REDUCED RATE 5%

examples: fuel and power used in the home and by charities, renovation and alteration of dwellings, women’s sanitary products

ZERO RATE 0%

certain goods and services on which you do not need to charge VAT (examples below)

ZERO-RATED SUPPLIES

These are taxable supplies on which the current VAT rate is 0%.

 Examples include:

 • most food (but not meals in restaurants or cafes and hot take-away food and drink);

 • books;

 • newspapers;

 • young children’s clothing and shoes;

 • exported goods (For further information see Notice 703 Exports and removals of goods from the UK).

 • most prescriptions dispensed to a patient by a registered pharmacist;

 • and most public transport services.

This list is not exhaustive, and further information regarding zero-rated supplies can be found in the Customs and Excise’s Notice 700 The VAT Guide. If all or most of your supplies are zero-rated, you may not need to be registered for VAT. This is called exemption from registration (See more info exemption in Notice 700/1

 “Should I be registered for VAT?” and its supplements).

See more info on what is VATable on the HM Customs and Excise web site.

EXEMPT SUPPLIES

Exempt supplies are business supplies other than taxable supplies on which VAT is not charged.

Examples include:

• selling, leasing and letting land and buildings (but not lettings of garages, parking spaces or hotel and holiday accommodation). See Notice 742 Land and property.

 • insurance;

 • betting, gambling and lotteries (but not takings from fruit machines);

 • providing credit;

 • particular education and training;

 • fundraising events by charities;

 • subscriptions to certain membership organisations;

 • the services of doctors and dentists;

 • and certain services from undertakers.

This list is not exhaustive, and further information regarding exempt supplies can be found in the Customs and Excise’s Notice 700 The VAT Guide.

If you are registered for VAT and make some exempt supplies, you may not be able to get all your input tax back. Notice 706 Partial exemption tells you more about this.

If all your supplies are exempt, you will not be able to register for VAT. However, if you make supplies of finance or insurance services or of investment gold to customers in countries outside the European Community, you may register voluntarily, in order to claim back any input tax you have paid in respect of these specified supplies.

You are also able to recover input tax where your supply consists of insurance and finance services (including intermediary services) that are directly linked to the export of goods from within the EC to outside the EC, regardless of where the recipient of the supply is established.

If you are making this type of supply and think you might be able to register, you should contact HM Customs and Excise for further advice.

VAT AND INTERNATIONAL TRADE

See the HM Revenue and Customs website for further information on VAT and international trade. It covers information on how ‘ the place of supply’ and business status of your customer/supplier can affect the VAT rules that apply to you.

VAT ON DIGITAL AND ELECTRONIC SERVICES

The HM Revenue and Customs website have detailed information on the special arrangements for charging VAT on supplying electronic services internationally.

FOR FURTHER DETAILS

• General enquiries from .Gov 

• HM Revenue & Customs Web site: hmce.gov.uk

• National Advice Service https://www.gov.uk/contact-hmrc

• If you need to refresh your maths skills, see how to add and deduct VAT.

• Read the “calculating VAT: the full guide” 

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