As a member of a charity or simply a consumer, you may believe that the concept of value added tax, or VAT, really affects nothing but your wallet or purse. But if you really want to know how value added tax affects you, as a consumer you may end up making smarter decisions that result in saving you at least a few pounds. And as an acting member of a charity, you will be able to better structure your not-for-profit organisation in such a way that its aim is better fulfilled and its funds are not unnecessarily wasted.
VAT As A Consumer
If you are a consumer, it is true that you will essentially only be affected by value added tax with regards to what it means to your spending cash. Of course, there are different rates on different products that you should make yourself aware of, so that you know what is taxed more highly than whatever else. Every country in the European Union has implemented VAT, and as such, there are different rates for every nation.
In the UK, three different rates apply, depending solely on the nature of the goods and services rendered. In this country the value added tax rates are enforced by Her Majesty’s Revenue and Customs, or HMRC.
First of these rates is the standard rate, which can be applied to nearly everything sold in the UK, except for those items which fall into the other two categories. The standard rate for value added tax in the UK is 15 per cent, which only recently was lowered from a past value of 17.5 per cent. The 17.5 per cent rate will be reinstated on 1 January, 2010.
Second is the reduced rate, which is 5 per cent. This applies to a few items, such as women’s sanitary products, children’s car seats, and domestic energy sources.
Last of these is the zero rate, which obviously means that no value added tax is imposed upon products and services within this distinction. Zero rated items include books, food, children’s clothes, and certain implements used as helpful accessories for the disabled, such as audio books for the blind.
How Is VAT Calculated And Displayed?
As with many taxes across the world, the value added tax of an item is calculated by multiplying the rate, such as 15 percent, with the original price, such as £1.00, for example, and then adding this amount to the original value. This leaves us, in our example of a 15 percent VAT rate and an original value of £1.00, with an item costing £1.15.
Various outlets and vendors are required by law to display the value added tax in different ways. In most shops, the price displayed on any item is its final price, as the VAT is already added on, which means you pay nothing extra to the cashier.
Catalogues and prices listed on adverts display the VAT depending on who these implements are aimed towards. If aimed towards the public at large, the custom for shops applies to these as well, and the price advertised is the price you will pay.
Adverts aimed at the public as well as businesses may display either a price with the VAT included or a price without. It is up to their discretion, however, so it is important to be careful and to ensure that one knows what price one must ultimately pay for anything. Catalogues and such aimed only at businesses will not usually include the value added tax in the displayed price, although it is often displayed near the top of this amount.
As for receipts of purchase, most you are given will display the price with VAT included in it, but this is not always the case. If you notice VAT listed as a separate item, this does not mean that there was an error of any sort. Instead, this simply states the amount charged for value added tax as an effort in convenience for the consumer. If you believe you have been charged VAT in error, be sure to contact the HMRC immediately, if the retailer does not help to resolve the issue.
VAT And Charities
Concerning charities, a large number of not-for-profit organisations and the like are not required to register for VAT. However, some are, and it can be a bit difficult in determining whether or not you happen to be one of these charities.
It is first a matter of how many of your activities as an organisation are “business activities,” as the income gained from these activities will be used to determine your VAT eligibility.
There are plenty of criteria accessible throughout HMRC documentation that can aid you in figuring which of your undertakings can be called business activities, such as whether these activities are undertaken for pleasure or from a more financial standpoint, and whether the amount of taxable supplies made within a given period might qualify an activity as businesslike.
Once the business activities of your organisation are determined, their income turnover must be assessed. If this meets or exceeds £67,000 for the past 12 month period, VAT registration is required by law. Even if you aren’t required to register for VAT, you may want to do so anyway. Registering for this might allow the reclaiming of paid value added tax which you have spent on taxable supplies for your organisation, and therefore it is likely that your charity will come out wealthier as a result of this registration.
If you do happen to register, it is important to note that you will have to ensure meticulous record keeping, and you will also have to file a return with the HMRC every three months. And if it turns out that you have taken in much more than you have paid in terms of taxable items, you will be required by the HMRC to quickly pay this amount.
With this information, hopefully you will be able to better conceptualise your place in the national economic machine, and whether you are a member of a charity or simply a consumer as all of us are, your financial intelligence should now be at a more higher and more beneficial level.