VAT is a tax chargeable on taxable supplies made in the UK by taxable persons. VAT is normally calculated on a quarterly basis, but in certain cases may be monthly or annually.

A taxable person is any person carrying on a business which is, or is required to be, registered for VAT, and includes the following:

1. An individual
2. A partnership
3. An unincorporated association e.g. trust or charity
4. A limited company
5. A limited liability partnership

Supplies

VAT law covers all types of supply of goods or services whether of a revenue or capital nature. Supplies include sale, hire, or loan of goods and normally fall into four categories:

1. Positive rated - taxable at standard rate 17.5% (15% from 1 Dec 08 to 31 Dec 09) or reduced rate 5%
2. Zero rated - e.g. exports, children’s clothing, most food, books, newspapers, and public transport etc
3. Exempt supplies - e.g. insurance, postage, finance, and bank charges etc
4. Some receipts are outside the scope of VAT e.g. dividends or non UK supplies

When to Register for VAT

You should notify HM Revenue & Customs when your taxable turnover for the past twelve months exceeds £67,000 or if your turnover in the next 30 days will exceed the £67,000 VAT threshold

It is important to monitor turnover because there is a penalty for late registration. This is in addition to the tax payable.

It is also possible to register voluntarily for VAT should you wish your business to do so.

Completion of VAT Returns

HM Revenue & Customs will normally issue a VAT return each quarter, which needs to be completed and paid for no later than thirty days after the date of the return. It is very important to ensure that your VAT is completed on time as extensive legislation exists to levy penalties on late VAT returns and payments thereof. See our penalty tables for a list of VAT surcharges.

We would be pleased to advise you on what records you need to keep to complete the VAT return.

Please note that VAT returns can now be completed online at HM Revenue & Customs.

When to Deregister for VAT

You must deregister when taxable supplies are no longer made, e.g. when trading ceases. You can deregister when anticipated turnover for the next year (measured from any time) is less than £65,000, but this may not be in your interests, so please seek our advice before doing so.

Tax Invoices

Specific rules are laid down as to the form and content of tax invoices.

You are required to use sequential numbering to identify the numbers you use. You can use both numbers and letters for invoice numbers, and use more than one sequence of numbers, but each must form part of a unique and consecutive series. If you cancel an invoice, you must keep a copy of it to show that you have not broken the numbering sequence.

A Tax Invoice is Required to Show:

1. An identifying sequential number / letter (which must be unique)
2. The date of the supply and the date of issue of invoice
3. The name, address, and registration number of the supplier
4. The name and address of the person to whom the goods and services are supplied
5. A description that is adequate for the purposes of identifying the goods or services supplied
6. For each description the quantity of the goods or the extent or nature of the services, price, the rate of tax, and the amount payable, excluding tax
7. The total amount payable excluding tax
8. The rate of any cash discount offered
9. The total VAT payable
10. The total amount payable including tax

Please see our VAT calculator for further information.