Introduction

 

 VAT was enacted in the 1972 Finance Act and commenced operation on 1April 1973. The tax replaced Purchase Tax and Selective Employment Tax. VAT is a EU Tax and directives are issued which are then implemented by member states.
 

The administration of the tax is carried out by H M Customs and Excise.

VAT is primarily a tax borne by the consumer and not by businesses. Registered businesses charge and pass on VAT (outputs) on taxable supplies and claim back VAT (inputs) incurred in the course of running a business.

VAT Rates

 

Standard rate 17½%

VAT is chargeable on the supply of goods or services supplied in the course of a business within the United Kingdom.
 

Standard rate 5%  

Domestic supplies of fuel and power
  Zero rated

 

 

 

This includes the following:

Food except confectionery
Books, publications, papers etc
Talking books for the blind
Construction of new houses
Alterations to listed buildings
Alterations to facilities for the disabled

 

Transport;Caravans/houseboats
Water services
Drugs and medicines
Imports and exports
Clothing/footwear for children
 

Exempt

Supplies exempt from VAT by statute and not subject to tax e.g. insurance, postage, finance.
Registration
Compulsory  
 Where the taxable supplies exceed the statutory limit of £55,000 a registration form must be submitted to H M Customs and Excise within 30 days.
Voluntary  
 Where the taxable turnover of a business is below the statutory limit it maysubmit an application for voluntary registration. This may be an advantage for asmall business dealing with VAT registered customers as it will be able to claimback its input VAT. A voluntary registration would not normally be advisable ifthe majority of customers are private and therefore unable to reclaim the VAT.

VAT Returns 

 

 A registered business has to submit VAT Returns on a three monthly basis by the end of the following month. Regular repayment Returns can be made monthly.

Cash
Accounting 

 

 

 VAT is normally accounted for on the issue of an invoice. Alternatively, if the taxable turnover of a business is less than £437,000 (ex VAT), VAT may be accounted for on a receipts and payments basis. This is particularly advisable where either long periods of credit are given or if there is the risk of bad debts.

Payne Sherlock can advise you on registration and help with the completion of your VAT Returns.

Back to Publications