You will need to register for VAT if your business’ VAT taxable turnover is more than £81,000. If this amount is less than £81,000 and everything you sell is exempt from VAT, you do not need to register.
You can register your business, partnership or a group of companies under one VAT number online, or by calling the VAT helpline. You can also appoint an accountant or agent to handle your VAT returns on your behalf.
If your business is based elsewhere in the EU selling to the UK; imports goods from another EU country, or your business is made up of several divisions that need to be registered separately, then you must register by post.
What is a VAT Return and why might I need one?
A VAT Return is a record of all your business’ sales and purchases; VAT owed and VAT that can be reclaimed that you must submit to HMRC every three months.
You must submit a VAT Return even if you have no VAT to pay or reclaim, and will also need to submit one when you cancel your VAT registration.
A late VAT Return or payment is known as a ‘default’ and you will automatically be entered into a surcharge period. A surcharge is a percentage of tax paid late, which you will be required to pay in addition to the VAT already owed.
How can I pay my VAT bill online or over the phone?
Your VAT bill can be paid online using a credit or debit card; through your bank, or by cheque. You can also set up Direct Debit for hassle-free payment.
To work out when you need to pay your VAT bill, use the payment deadline calculator on the HMRC website, or call the VAT helpline for details.
To pay your VAT bill online or via telephone banking; Bacs; CHAPS or standing order, it is crucial that you check your bank’s transaction limits and processing times to ensure you make your payment on time. You will also need HMRC’s banking details, and your VAT registration number.
To pay your VAT bill online visit the HMRC online VAT payment page here and input your VAT registration number, the date your VAT accounting period ends and the amount you owe and the online VAT system will guide you through the rest of the payment process.
How is VAT calculated?
There are many calculators online that will help you calculate how much VAT you owe, which are helpful as the formula for the calculation can often be quite complicated. As VAT is a tax on business transactions, the rates can change, which means the online calculators are useful as they are up to date and will give you the correct reading. In January 2011 the VAT rate was increased to its highest ever of 20%. The rate of VAT is a percentage of the price before tax.
If you are a business, you will not be able to claim back VAT on regular purchases and day to day transactions as you often make up for this in the prices that you charge your customers. If you charge clients 20% VAT on top of the original price, then it will cover the VAT you then pay back to HMRC. If you have purchased any goods or services that are to be used within your business, then you are likely to be able to reclaim that VAT. If something you have purchased will be used both in your business, but then also for personal use, you might be able to claim part of that VAT back. Of course there is exceptions to the rule and things that you can’t reclaim VAT for include anything that is purely for private use and anything that has been bought from other EU countries and brought over to England. If expensive equipment has been bought, special rules apply to reclaiming the VAT from them, if they cost more than £50, 000 or more before VAT as well as land and buildings that cost £250, 000 or more before VAT. There is a procedure you need to follow should you want to reclaim VAT which involves logging into your HMRC online account, where you will find if you’re owed any VAT refund. A refund will usually take 10 days, but can take anywhere up to 30.
Why is VAT applied?
Value Added Tax generates a significant amount of the government’s income and controls public spending. the system is designed to be a fair one, as those with higher disposable income will supposedly buy more and as a result will pay more VAT than those on a lower income. For this reason also, there are items that VAT is exempt from, such as staple food items that are clashed as essential (food in restaurants will undergo a VAT charge). Sanitary protection for women has also recently become exempt from VAT as well as children’s clothes and shoes. Public transfer fares, whilst may seem pricey, are actually VAT exempt as well, with many people from all different walks of life needing to use public transport, it is important that costs are kept to a minimum. There are also VAT exemptions on things bought for medical purposes such as wigs that are bought for hair loss after a person has undergone chemotherapy.
What Is VAT?
VAT stands for Value Added Tax, which is a tax levied on all goods and services purchased in the UK. Introduced in 1973, it is the third largest source of government revenue, after income tax and National Insurance.
As of 2014, the standard rate of tax for most goods is 20%, but this can vary for certain items such as domestic fuel (which has a VAT rate of 5%) or foods and children’s clothing (for which VAT is 0%).
Because VAT is paid to the government by the seller or trader, it is what is known as an indirect or regressive tax.
Different types of VAT forms
Depending on which type of VAT admin you need to do, you’ll have to fill in different types of forms.
To register, deregister, transfer a VAT number, change your details or report an insolvency, you’ll need the following forms:
VAT application for registration (VAT1)
VAT application for registration- distance selling (VAT1A)
VAT application for registration- acquisitions (VAT1B)
VAT registration notification (VAT1C)
VAT Partnership details (VAT 2)
VAT changes to registration details (VAT484)
VAT registration- land and property (VAT5L)
VAT request for transfer of a registration number (VAT68)
VAT notification of insolvency details (VAT769)
For VAT returns, corrections and payments, you will need the following forms:
VAT: pay by BACS or standing order- (VAT622)
VAT annual accounting scheme- Direct Debit (VAT623)
VAT notification of errors in returns (VAT652)
VAT late submission of an online return- reasonable excuse (WT2)
For international VAT trade, you’ll need to obtain forms:
VAT EC sales list (VAT101)
VAT appointment of tax representative (VAT1TR)
For international visits and VAT refunds, you will need forms:
VAT application for a VAT refund by a person not established in the community (VAT65A)
VAT tax free shopping checklist for retailers (VAT407 notes)
For any VAT accounting schemes, you’ll need:
VAT application to join the accounting scheme (VAT600A)
VAT application to join the flat rate scheme (VAT600FRS)
To tax land and buildings, you will need to have the following forms:
VAT notification of an option to tax land/buildings (VAT1614A)
VAT notification of a real estate election (VAT1614E)
VAT registration land and property (VAT5L)
If you are an individual, land authority or another type of non-business customer, you may need the following forms:
VAT claim for refund by local authorities and other bodies- (VAT126)
VAT new means of transport- notification of acquisition for ships and aircrafts (VAT415)
If you are a motor dealer, you may need the following types of forms:
Notification of multiple construction vehicles brought into the UK
Notification of multiple caravans brought into the UK
Notification of multiple cars brought into the UK
VAT rates on goods and services
If you are registered for VAT, you will have to charge it on certain types of taxable supplies. The items which qualify and the rate that you charge depends on the type of goods and services. VAT rates may only apply in certain conditions, for example it can depend on: who’s buying them, where they are provided, how they are presented for sale, the precise nature of the goods and services, whether you get the necessary evidence, whether you keep the correct records and whether they are provided with other services or goods. There are also certain rules for specific organisations such as builders and charities that can affect how you account for VAT.
Food/drink/animals/animal feeds/plants and seeds
Food and drink which is for human consumption is generally zero rated but some items are standard rated, such as alcohol, crisps, confectionery and savoury snacks. As a result of most foods being zero rated, so are animals and animal feeds, as well as plants and seeds if the animal or plant produces food which is for human consumption.
Physical education and sports activities are exempt from VAT. For betting and gaming, these are exempt including bingo, lottery games and the sale of lottery tickets. Admission charges by public authorities to the likes of museums, zoos, art exhibitions and performances are also exempt. The sale of antiques is also exempt. In terms of welfare, the sale of mobility aids to the elderly is subject to 5% VAT. For health, sanitary protection aids are subject to a rate of 5%.
All energy saving materials such as solar panels and insulation are given a VAT rate of 5%. Heating equipment such as boilers and radiators are also taxed at this rate. Categories such as financial services and insurance are completely exempt from VAT, as are clothing and footwear and publications such as books.
You have to keep VAT records for a minimum of 6 years, or 10 years if you use the VAT MOSS service. You can keep the records on paper, electronically or as part of a software programme, but they must be accurate, complete and readable. If you have misplaced a VAT invoice or it is damaged, ask the supplier for a duplicate record. It is important to bear in mind that HMRC can visit your business to check your record keeping and will be able to charge you a penalty if they think that they are not in order. If you need help managing your VAT records, you can hire a professional to assist you.
Records that you must keep include:
Copies of all the invoices you issue
Originals of all the invoices that you receive
Self-billing agreements where the customer prepares the invoice
The name, address and VAT number of any billing suppliers
Credit or debit notes
Import or export records
Records of any items which you can’t reclaim VAT on
Records of any items which you give or take away from your stock for your private use
Records of all zero rated, reduced or exempt VAT items which you buy or sell with a VAT account
You should also keep general business records such as cash books, bank statements, paying in slips and till rolls.
If you are a retailer, you don’t have to issue VAT invoices to customers unless they ask you to. If they do, keep a copy. For supplies under £250, retailers can issue simplified invoices.
When you have to return goods to a supplier or they return them to you, the balance of payment can be settled with a credit or debit note, but you should record these in your accounts.
You need to keep a separate record of the VAT that you charge and the VAT that you pay. This is known as a VAT account. There are no rules to say what this should look like, but it should include your total VAT sales, purchases and the amount of VAT which you owe HMRC.