If you are business owner or part of a charity wondering about the complexities of Value Added Tax (VAT), you'll find everything you need to know about it in this blog post, including registration requirements, exemptions, relief for charities, and different VAT schemes.
What is VAT and Who Needs to Register?
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 £85,000. You must also register (regardless of VAT taxable turnover) if all of the following are true: you’re based outside the UK; your business is based outside the UK; you supply any goods or services to the UK (or expect to in the next 30 days). Other businesses can also choose to register if their taxable turnover is less than £85,000 as a voluntary registration.
VAT and Charities
Contrary to popular belief, charities are not exempt from VAT. They are required to pay VAT on standard-rated goods and services purchased from registered businesses. However, charities can benefit from reduced VAT rates of 5% or even a 'zero rate' for certain goods and services. Moreover, they do not pay VAT on goods imported from outside the UK if they are used for the benefit of people in need by providing:
basic necessities;
equipment and office materials to help run your organisation for the benefit of people in need;
goods to be used or sold at charity events.
To get VAT relief charities must give their supplier evidence that they are a charity and a written declaration or ‘certificate’ confirming that they are eligible for the relief. To evidence of charitable status, they must have a Charity Commission registration number or a letter of recognition from HM Revenue and Customs (HMRC).
VAT and Builders/Trades
VAT for most work on houses and flats by builders and similar trades like plumbers, plasterers and carpenters is charged at the standard rate of 20% - but there are some exceptions. You may not have to charge VAT on some types of work if it meets certain conditions, including: building a new house or flat or work for disabled people in their home. You may be able to charge a reduced rate of 5% for some types of work if it meets certain conditions. You do not need to charge VAT for construction work on certain other types of building.
Responsibilities of VAT-Registered Businesses
As a VAT-registered business, you have specific responsibilities, including keeping records of VAT payments for business purchases, reporting VAT amounts charged to customers and paid to other businesses through regular VAT returns, usually submitted every three months. Additionally, you must ensure timely payment of any VAT owed to HMRC.
VAT Schemes to Simplify Accounting
VAT schemes are designed to simplify the way some VAT-registered businesses calculate and account for VAT to HMRC. 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. 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 four or 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 or one of three VAT retail schemes - calculate the VAT once with each VAT return rather than calculating it for each sale you make.
Charging VAT on Taxable Supplies
If you are registered for VAT, you must charge VAT when you make taxable supplies, what qualifies and the VAT rate you charge depends on the type of goods or services you provide, for example no VAT is charged on goods or services that are exempt from VAT or outside the scope of the UK VAT system. Goods exported outside the UK are zero-rated, subject to conditions.
VAT on Food and Drink
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. Restaurants must always charge VAT on everything eaten either on their premises or in communal areas designated for their customers to use, such as shared tables in a shopping centre or airport food courts.
Contact Us for VAT Consultation
In conclusion, VAT is an integral part of the business landscape and can be complex to navigate. Understanding the registration requirements, relief options for charities, and various VAT schemes can help businesses manage their VAT obligations more efficiently.
If you need assistance with VAT registration or have questions about the complexities of VAT, feel free to arrange an initial consultation with us by calling 02030920963.
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
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