Value Added Tax (VAT) is a tax charged on most business transactions made in the UK or the Isle of Man. It is a sales tax levied on the sale of goods and services, imported from places outside the European Union and on goods and some services coming into the UK from the other EU countries. Value added tax (VAT), VAT is an indirect tax, in that the tax is collected from someone other than the person who actually bears the cost of the tax. Personal end-consumers of products and services cannot recover VAT on purchases, but businesses are able to recover VAT where they use the supplies that they receive that bear VAT to make further supplies that also bear VAT. In this way, the total tax levied at each stage in the economic chain of supply is a fraction of the value added by a business to its products, and most of the cost of collecting the tax is borne by business, rather than by the state. VAT was invented because very high sales taxes and tariffs encourage cheating and smuggling.
Under the EU system of VAT, where a person carrying on an economic activity supplies goods and services to another person, and the value of the supplies passes financial limits, the supplier is required to register with the local taxation authorities and charge its customers, and account to the local taxation authority for, VAT (although the price may be inclusive of VAT, so VAT is not paid in addition to the agreed price, or exclusive of VAT, so VAT is payable on top of the agreed price). In the UK, Customs and Excise is responsible for administering VAT.
All goods and services that are VAT rated are called 'taxable supplies'. You must charge VAT on your taxable supplies from the date you first need to be registered. The value of these supplies is called your 'taxable turnover'.
Some examples of taxable supplies
- selling new and used goods, including hire purchase
- renting and hiring out goods
- using business stock for private purposes
- providing a service, for example hairdressing or decorating and
- charging admission to enter into buildings.
If you are VAT registered, you will charge VAT on many goods and services you supply to customers in the UK and Isle of Man.
VAT does not apply to certain services because the law says these are 'exempt' from VAT. These include loans of money, some property transactions, insurance and certain types of education and training. Supplies that are exempt from VAT do not form part of your taxable turnover.
There are three rates of VAT in the UK:
- 15% per cent (standard-rate)
- 5 per cent (reduced rate)
- 0 per cent (zero-rate).
All goods and services which are liable to VAT at the standard, reduced or zero-rate are called 'taxable supplies', whether you are registered for VAT or not. The total value of these supplies is called your 'taxable turnover'. If you are in business and your taxable turnover reaches or is likely to reach the registration threshold you will probably have to register for VAT and must charge VAT on your taxable supplies from the date you first need to be registered. It is important that you register at the correct time. Value Added Tax (VAT) is a tax businesses charge when they supply their goods and services in the United Kingdom. It is also charged on goods, and some services, that are imported from places outside the European Community EC and on goods and services coming into the UK from another EC Member State. You will probably have to register for and charge VAT if:
- Your taxable supplies, distance sales, or acquisitions are expected to exceed £ 67,000 in the next 30 days,
- Or if you are already trading, and they have exceeded £ 67,000 in the past 12 months.
These rules also apply when you take over a business as a going concern. It does not matter whether the last owner was registered:
- if the business is trading at a level above the limit then you will need to register and
- Your date of registration will be the day you take over the business.
Value added tax is one of the most complex tax regimes imposed on businesses which often results in many businesses inadvertently overpaying or underpaying VAT. The ever widening scope of VAT, the constant stream of detailed changes to the regulations, and the ever growing demands of Customs and Excise call for a trained professional eye to ensure that you do not fall foul of the regulations and do not pay the Exchequer more than you need to. Fides Partners provide an efficient cost effective VAT service, which includes:
If you require further guidance or advice, please do not hesitate to
contact us.
