VAT: What your Business Needs To Know

The Basics

When deciding if your business needs to charge or claim VAT (Value Added Tax) it is important for the owner to decide what type of service or goods he/she is offering. The very nature of the business and goods offered will determine what, if any, VAT is required and how to go about registering for VAT. The amount of VAT has changed in the past year so many business owners will need to be aware of this information.

For example, if you own a retail store and your products are sold to a customer, then most likely you must charge VAT. However, there are a few exemptions on the goods list. If it is furniture or appliances, yes, you charge VAT. The Zero VAT exemptions are applicable to some types of groceries, books and newspapers, children’s shoes and clothing and public transportation. So it varies from type of business or service to goods that are being offered. Certain food products are exempt but not the takeaway or fast-food style and other more luxurious items such as chocolate.

If your business offers insurance or provides credit, then you have Zero VAT. Perhaps you offer education and training to adults, you are also exempt, but not the textbooks which the students purchase. If you offer subscriptions to organisations which have memberships, you do not charge VAT. If you are leasing or letting vacant land, then you do not have to charge VAT.

Reduced amount VAT can be charged to domestic fuels and power, any installation of energy-saving products, upgrades to residences, women’s sanitary products and children’s safety car seats. So it depends largely on the type of business you run, the products you offer and the customer base you have, whether or not you apply VAT.

The amount of VAT has changed, as earlier mentioned, in the past year. Different VAT rates apply and currently there are three rates as follows. The Standard rate from the 1st of December 2008 to the 31st of December 2009 is 15%. It will return to 17.5% on 1st of January 2010. The Reduced Rate of VAT is 5% and the Zero rate is 0%. If your business has a gross turnover of £67,000 then you must charge VAT.

How To Register

If and when you have decided that you have to register for VAT, you may do so online through HMRC. The process usually takes about six weeks for the registration to be fully completed. During the time between which you became liable to collect VAT and the actual receipt of the VAT registration number and paperwork, you must start to collect the appropriate VAT. If necessary, inflate the price of the furniture or appliance or car by the 15% or appropriate VAT amount and tell the customers why you are doing so. Then, when the registration comes through, contact the customer with the information and new receipts so that they may claim the refund.

More Facts And Features Of VAT

If you are purchasing a business, it makes all the difference if it is a turn-key and going concern. If it is, then you must have been registered to collect VAT before taking over. If you are mainly buying the chattels, the machinery or the fixtures and fittings, then you must charge VAT on the goods. If you buy a business which is a going concern, you may be able to keep that same VAT registration number. However, in doing so, you take on the liability of the business and any unclaimed bad debt relief or record keeping as set up. That decision is yours to make.

Appoint An Advisor

If, for whatever reason, you wish to have someone else look after the VAT for your business, this is entirely possible. That designated person will register for VAT online with your permission, do the paperwork, and deal with HMRC directly. Most often it is an accountant or bookkeeper, but there are stipulations. For a sole ownership business such as a corner store, it is either you or your appointed agent such as a bookkeeper. In a partnership business, for example an art gallery or car mechanics, a partner or an authorised signatory may register. If you own a Limited Company, a director, company bookkeeper, or appointed partner may do the paperwork. And finally, if it is an unincorporated business or store, a secretary or an appointed partner may register in your name.

Visits From A VAT Officer

Once your business is up and running and fully registered, you may receive a visit from a VAT officer. There are several reasons for a visit, but the main issue is to make sure that your business is a going-concern and you are collecting the proper amount of VAT, what improvements could be made in the collections thereof, and how to collect all late payments. The visits for a small business might be just a few hours, with or without an appointment, to see how the day-to-day work is done. If it is a large business, an appointment with the accountant or bookkeeper is made and the visit can last a few days. For these reasons, it is important to make regular payments, keep your records up to date and give all the answers and supplies the VAT officer requires. They are also trying to save you money by not paying too much VAT.

Definition Of VAT

So all in all, what is VAT? VAT is a tax for consumer consumption which is collected on businesses, imports and acquisitions. Since most business transactions involve the supply of goods or services, VAT is payable if the supplies are made in the UK, by a taxable person, in the course of business.

It has been said, that the reduction for one year in the rate of VAT to 15%, will provide savings to the citizens that may be in the region of £12 billion. It might or might not be the stimulus to spending more on goods and services which the economy needs to keep going in the next year or so.

 

Comments

  1. Should VAT be charged on postage and packing. I recently received a parcel from a company which has charged me VAT on the postage. I don’t recall ever seeing this before.

    — Theresa Malein · Nov 29, 02:01 PM · #

  2. With regards to Theresa’s comment (no.1), I’m pretty sure that you must add VAT to the cost on postage.

    If I am providing professional services to another company, which then sell on such services to another company in another EU country, then I believe that UK VAT must be added to my invoices. Am I wrong?

    — Bob Owen · Dec 5, 06:32 PM · #

  3. I was ordering some wholesale goods for my small business (not VAT registered) and when the costs were added up they added the delivery costs onto the cost of the goods and then charged VAT on both. I thought VAT would only be added onto the goods, however, having looked through the company’s terms and conditions again, it says VAT will be added onto delivery charges.

    If anyone knows whether this is standard practice please comment. Also, if you are VAT registered, own a business and order wholesale goods, can you claim the VAT back?

    Thanks. Jan.

    — Jan C Cantwell · Feb 24, 08:14 PM · #

  4. Postage is exempt, however VAT should be charged on postage & shipping, courier/delivery chargers.

    It seems correct that you were charged VAT on the goods and also on the delivery costs.

    If you are registered for VAT you can reclaim ALL the VAT incurred by your business.

    This is easy to do. First, register for the Revenue Online Service (“ros”). This takes just a few simple steps, including revenue mailing you a password. To start the process, go to www.revenue.ie scroll down to the “ros” section, and click on “Register for ros”.

    — Catherine · Mar 9, 03:00 PM · #

  5. When being quoted for some work to be carried out in this case furniture restoration should VAT have been quoted at the same time. Verbal quote

    — Jackie Powell · Sep 14, 03:21 PM · #