VAT registration

Value added tax ( VAT ) is a European tax – it applies throughout the European Community ( EC )

We are going to look at VAT within the United Kingdom only.

 

How does VAT work?

 

VAT is a tax paid by consumers but it is collected by businesses on behalf of HM Revenue and Customers.  Businesses who makes taxable supplies collect the tax from their customers. The VAT charged on sales or taxable supplies is known as output VAT. Those businesses (taxable persons) have to assess the amount of tax payable on goods and services provided ( output  tax). They put it over on a regular basis to HMRC. VAT on purchases or expenses in known as input TAX. As the businesses themselves are not being taxed, they are allowed to reclaim tax on their own expenditure ( input VAT ). The input VAT is deducted from the output VAT and the net amount is paid each quarter to HMRC, or recovered from them

 

Example:

 

A business makes sales of £10.000 plus £1.750 of VAT. Its expenditure totals £7.000 plus £1.225 of VAT. How much VAT is due to HMRC?

Solution

Output VAT  £1.750

Less: Input VAT £1.225

VAT due  £525

 

VAT Registration

 

a.       Compulsory registration

 

Anyone in business whose taxable supplies exceed a certain annual limit (currently £73.000) must register. This includes sole traders, partnerships and limited companies. Penalties for failing to register can be severe

 

b.      Voluntary registration for VAT

 

A business may volunteer to register for VAT even if it has not reached the statutory limit. The reason a person may voluntarily register for VAT is if they have zero-rated supplies and wish to register in order to reclaim their input tax

 

c.       Deregistration for VAT

 

A taxable person may deregister if the value of his taxable supplies ( net of VAT ) is expected to be less than £71.000 in the following 12 months.

 

Types of supply

 

a.       Rates of VAT

 

There are three types of supply: standard –rated, zero-rated and exempt. These are examples of zero-rated and exempt items

 

Zero-rated:

Water and most types of food

Books and newspapers

Drugs and medicines

Public  transport

Children’s clothing and footwear

Sewerage + water services

New house building

 

Exempt:

Land (including rent on property)

Insurance

Postal services

Betting, gaming and lotteries

Finance ( e.g. making loans)

Non profit-making education

Health services provided by doctors and dentists

 

All supplies that are not zero-rated or exempt are standard-rated at 20%. The exception is the supply of domestic fuel and power which is a rate of 5%.

 

Zero-rated and exempt supplies

 

The distinction between zero-rated supplies and exempt supplies is important. If a person makes zero-rated supplies then input VAT can be reclaimed from HMRC. However, if a person makes exempt supplies, he cannot register for VAT and therefore cannot reclaim any input tax from HMRC

 

Partial exemption for VAT

 

A taxable person who makes both taxable supplies ( standard and zero-rated) and exempt supplies is referred to as “ partially exempt “

 

Non-reclaimable input tax

 

There are some items of expense upon which VAT is charged but the VAT cannot be reclaimed. These include:

Business entertainment expenses

Purchase of a car for use within the business

Goods and services  purchased but not used within the business i.e. used by the owner instead.

 

As we are official HMRC agents, we are able to offer you our VAT registration services. Although it is possible to complete a VAT registration form yourself, we recommend that you do it through an accounting company, for the following reasons:

 

1.       Any incorrect wording in the form can lead to a considerable delay in receiving your number, and even end up in your application being refused.

2.       Accounting companies like ours are official HMRC agents, and all forms are completed online by professionals.

3.       An accounting company will always be able to provide expert assistance for the client in the case of disputes or other issues.

4.       An accounting company usually (according to the client's wishes) takes care of the financial running of the company, and after receiving the VAT number offers a full service, while handling regular VAT returns.

5.       A minimal fee for this kind of service will not only allow you to save on finances, but will also save your time.

 

Should you wish to submit documents for VAT registration, please send us an email