VAT

Value Added Tax (VAT)

VAT (Value Added Tax) is a tax added to most products and services sold by VAT-registered businesses.

Businesses have to register for VAT if their VAT taxable turnover is more than £90,000. They can also choose to register if their turnover is less than £90,000.

Your responsibilities as a VAT-registered business
As a VAT-registered business you must:

• include VAT in the price of all goods and services at the correct rate
• keep records of how much VAT you pay for things you buy for your business
• account for VAT on any goods you import into the UK 
• report the amount of VAT you charged your customers and the amount of VAT you paid to other businesses by sending a VAT return to HM Revenue and Customs (HMRC) – usually every 3 months
• pay any VAT you owe to HMRC
• The VAT you pay is usually the difference between any VAT you’ve paid to other businesses, and the VAT you’ve charged your customers.

If you’ve charged more VAT than you’ve paid, you must pay the difference to HMRC.
If you’ve paid more VAT than you’ve charged, HMRC will usually repay you the difference.
You can appoint us an agent to deal with HMRC on your behalf if you prefer.
There are VAT schemes you can join that affect how you calculate and report the VAT you owe HMRC

VAT schemes

VAT schemes are designed to simplify the way some VAT-registered businesses calculate and account for VAT to HMRC.
They do not change the amount of VAT businesses charge for their products and services. They are voluntary to join.

VAT Flat Rate Scheme

The VAT Flat Rate Scheme lets you work out what you owe HMRC in VAT as a percentage of your gross turnover.
You can only use this scheme if you’re a small business with an annual taxable turnover of £150,000 or less excluding VAT.
The amount of VAT you pay depends on your industry and type of business.

Other VAT schemes

There are other VAT schemes you may be able to join depending on your VAT taxable turnover and type of business.
If your annual VAT taxable turnover is £1.35 million or less, you may be eligible for the:

VAT Annual Accounting Scheme - complete one VAT return each year instead of 4
VAT Cash Accounting Scheme - pay VAT to HMRC when your customer pays you rather than when you invoice them
If you are a retail business or sell second-hand goods, you may be able to use: a VAT margin scheme - pay VAT on the value you add to the goods you sell rather than on the full selling price of each item one of 3 VAT retail schemes - calculate the VAT once with each VAT return rather than calculating it for each sale you make

What VAT is charged on

VAT is charged on things like:

Goods and services (a service is anything other than supplying goods)
Hiring or loaning goods to someone
Selling business assets
Commission
Items sold to staff - for example canteen meals
Business goods used for personal reasons
‘Non-sales’ like bartering, part-exchange and gifts
These are known as ‘taxable supplies. There are different rules for charities.

VAT is not charged on goods or services that are exempt from VAT or are unaffected by VAT (‘out of scope’).

How much VAT you must charge

There are 3 different rates of VAT that can be added to products. Which one applies depends on the goods and services, and how they’re used.
Most goods and services are charged at the standard rate of 20%. You should charge this rate unless the goods or services are classed as reduced or zero-rated. Get a list of reduced or zero-rated goods and services.

Examples of zero-rated items include:

Books and newspapers
Children’s clothes and shoes
Motorcycle helmets
Most goods you export from England, Wales and Scotland (Great Britain) to a country outside the UK
Most goods you export from Northern Ireland to a country outside the EU and the UK
Goods you supply from Northern Ireland to a VAT-registered EU business - you can check if the VAT number is valid

VAT thresholds

You need to register for VAT if you go over the registration threshold (or expect to). There are also thresholds for using some VAT accounting schemes. Use your taxable turnover to work out if you’re over a threshold. This is the total value of everything you sell or supply that is not exempt.

Registration thresholds

Circumstance Threshold What to do
Total taxable turnover More than £90,000 Register for VAT

Bringing goods into Northern Ireland from the EU (‘acquisitions’)
More than £90,000 Register for VAT

Selling goods from Northern Ireland to consumers in the EU (‘distance selling’) Total sales across the EU over £8,818 Register for VAT in EU countries

VAT-registered - taxable turnover Less than £88,000 Cancel VAT registration (optional)

VAT accounting scheme thresholds
Scheme Threshold to join scheme Threshold to leave scheme
Flat Rate Scheme
£150,000 or less More than £230,000
Cash Accounting Scheme
£1.35 million or less More than £1.6 million
Annual Accounting Scheme
£1.35 million or less More than £1.6 million
There are different thresholds for other schemes like the VAT retail schemes.

VAT