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Value Added Tax (VAT) is levied on most business transactions and on many goods and some services.
There are three rates of VAT in the UK: 17.5% (the "standard" rate), 5% ("reduced" rate) and 0% ("zero" rate).
If you run a business or work for yourself you will probably have to register for VAT if your taxable turnover reaches a certain limit, if you take over a business as a going concern or you buy goods from elsewhere in the EU.
The current VAT registration level can be found at the HMRC web site, but businesses with turnovers of less than this limit can also register if they wish. If you are over the level and fail to register you can be fined.
Taxable turnover
Goods and services liable to VAT are called "taxable supplies". If your business turnover reaches the registration threshold, it must be registered for VAT and the business must charge VAT on all taxable supplies.
VAT doesn't apply to services such as insurance, some types of education, training and loans, as these are deemed to be "exempt
The amount owed to Revenue and Customs is the difference between your output tax and input tax.
Output tax is the VAT charged to your customers, and VAT charged by suppliers to your business is your input tax.
To work out what is owed to Revenue and Customs, deduct your input tax from your output tax. If input tax is greater than output tax, a refund may be owed.
Should I register?
Even if your taxable turnover is below the threashold, you may be eligible to apply for 'voluntary registration'.
There are advantages and disadvantages to registering voluntarily - and it is important to weigh up the pros and cons.
Revenue and Customs says one of the benefits is increased "credibility" but maybe the more important benefit is, if your business makes standard or zero-rated supplies, you'll be able to claim back input tax.
Once registered for VAT, however, it can be seen as a hassle. You'll have to keep careful VAT records and accounts, account for output tax on all your taxable supplies, and send in VAT returns regularly.
For more detailed information, we advice you to call Revenue and Customs helpline: 0845 010 9000.
If VAT registered, the standard rate of VAT is the default rate for goods and services unless specified otherwise.
Examples of reduced rate items include:
· domestic fuel and power
· installation of energy-saving materials
· residential conversions
· women's sanitary products
· children's car seats
Examples of zero-rated items include:
· food - but not meals in restaurants or hot takeaways
· books and newspapers
· children's clothing and shoes
· public transport
Items which are exempt from VAT include the following:
· insurance
· providing credit
· education and training, if certain conditions are met
· fund-raising events by charities, if certain conditions are met
· subscriptions to membership organisations
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