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    UK VAT Basics-1

    Uploaded by

    Md. Munir Hossain
    Businesses in the UK must register for VAT if their annual sales exceed £85,000. VAT-registered businesses must charge VAT on sales and can reclaim VAT paid on purchases. There are standard, reduced, and zero VAT rates applied to different goods and services. Exempt supplies are outside the scope of VAT.

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    UK VAT Basics-1

    Uploaded by

    Md. Munir Hossain
    20 views3 pages
    Businesses in the UK must register for VAT if their annual sales exceed £85,000. VAT-registered businesses must charge VAT on sales and can reclaim VAT paid on purchases. There are standard, reduced, and zero VAT rates applied to different goods and services. Exempt supplies are outside the scope of VAT.

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    Businesses in the UK must register for VAT if their annual sales exceed £85,000. VAT-registered businesses must charge VAT on sales and can reclaim VAT paid on purchases. There are standard, reduced, and zero VAT rates applied to different goods and services. Exempt supplies are outside the scope of VAT.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    20 views3 pages

    UK VAT Basics-1

    Uploaded by

    Md. Munir Hossain
    Businesses in the UK must register for VAT if their annual sales exceed £85,000. VAT-registered businesses must charge VAT on sales and can reclaim VAT paid on purchases. There are standard, reduced, and zero VAT rates applied to different goods and services. Exempt supplies are outside the scope of VAT.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    UK VAT (Value Added Tax) Basics

    Who will register for VAT?


    A business firm registered in UK having yearly turnover/sales of GBP 90,000.00 or more. Any firm can also
    register for VAT voluntarily if it expects its turnover/sales to reach or exceed the threshold.

    Which government authority collects VAT?


    Businesses submit VAT Returns to HMRC (Her Majesty's Revenue and Customs).

    Responsibilities of VAT-registered businesses:


    • Must charge VAT on their goods or services from the VAT Registration effective date.
    • May reclaim any VAT they’ve paid during purchase of business-related goods or services
    • Must report to HMRC the amount of VAT collected from customers and the amount of VAT paid to
    suppliers. This is done through VAT Return which is usually due quarterly i.e. every 3 months.
    • The deadline for submitting the return online and paying HMRC are usually the same - 1 calendar
    month and 7 days after the end of an VAT period. You need to allow time for the payment to reach
    HMRC's Account.

    What are the benefits of being VAT registered?


    1. Can reclaim the Input VAT paid to the suppliers.
    2. Business Customers will be interested to purchase to reclaim VAT.
    3. Can gain confidence of the business community (Prestige & Positioning).

    There are 3 different rates of VAT:

    Standard Rate (20%S): Most goods and services are standard rated i.e. 20%. You should charge this rate
    unless the goods or services are classed as reduced or zero-rated.

    Reduced rate (5%R): Charging of this rate depends on the nature of item and the circumstances of the sale
    as well. For example:
    • Children’s car seats
    • Motorcycle helmets
    • Electricity, gas, fuel for domestic and residential use

    Zero Rate (0%Z): Zero-rated means that the goods are still VAT-taxable but the rate of VAT you must charge
    your customers is 0%. You still have to record them in your VAT Accounts and report them on
    your VAT Return. Examples include:
    • Food and drink for human consumption is usually zero-rated but some items are always standard-
    rated. These include catering, alcoholic drinks, confectionery, crisps and savoury snacks, hot food,
    sports drinks, hot takeaways, ice cream, soft drinks and mineral water.
    • Children’s clothes and footwear
    • Books, Newspapers and Magazines

    Exempted (0%) – No need to register for VAT


    • Financial services
    • Insurance, finance and credit
    • Care or medical treatment provided by a qualifying institution like a hospital, hospice or nursing
    home
    • Health services provided by registered doctors, dentists, opticians, pharmacists and other health
    professionals
    • Education, vocational training and other connected services provided by an eligible body like a
    school, college or university
    • Public Postal Service

    UK VAT Rates for Sales:


    VAT Code/Rate Goods/Services sold to
    20%S or 5%R or 0%Z (Based on Product or Service) UK based Customers
    0%Z Outside UK Customers (Export)

    If our client is not registered for VAT, he/she will use “No VAT” Code for Sales.

    UK VAT Rates for Purchase:


    VAT Code/Rate Goods/Services purchased from
    20%S or 5%R or 0%Z (As written on the VAT Invoice) UK based VAT-Registered Suppliers
    Exempt UK based Suppliers of Exempt Products and Services
    0%Z UK based VAT-Unregistered Suppliers
    0%Z Outside UK Suppliers (Import)*

    * For imports, there may be separate Import Duty and VAT which will be collected by Custom Authority.

    Transactions that are Exempt, Zero Rated and from a VAT-Unregistered supplier are within the scope of VAT
    and should be reported in the VAT Return. You must not use NO VAT code for these transactions. If you apply
    NO VAT, the transaction will be excluded from your VAT Return.

    No VAT will be used for transactions which are OUTSIDE THE SCOPE of VAT. Examples are:
    1. Account to Account Transfer
    2. Wages & Salaries payment
    3. PAYE, National Insurance, Pension transfer
    4. Money put into and taken out of the business bank accounts by owners, i.e. Director’s Loan Account
    5. Loans Disbursement & Repayment, Grants, Gifts, Insurance Claim
    6. Director’s Remuneration, Drawings, Dividends
    7. Government Fees, Licenses & Taxes payment
    8. Local Authority Rates payment

    Important points:
    1. Output VAT collected on Sales will be paid to government (Liability increases)
    2. Input VAT paid on Purchases will be reclaimed from government (Liability decreases)
    3. To reclaim VAT on Purchases the Invoices must include valid VAT Registration Number
    4. Business/Client Entertainment Expense – 0%Z VAT (Cannot be reclaimed)
    5. Employee Entertainment Expense – 20%S VAT (Can be reclaimed up to certain limit if proved)

    ***You can check the validity of a VAT Registration Number through the following link of HMRC:
    https://www.tax.service.gov.uk/check-vat-number/enter-vat-details
    VAT Returns/Reports
    Box 1 VAT collected on Sales
    Box 2 VAT on acquisition from EU Countries
    Box 3 Total collection (Box 1 + Box 2)
    Box 4 VAT paid on Purchase
    Box 5 Net VAT to be paid or reclaimed (Box 3 – Box 4)
    Box 6 Net value of Sales
    Box 7 Net value of Purchase
    Box 8 Net value of EU Sales
    Box 9 Net value of EU Purchase/Acquisition

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