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An introduction to VAT
What is VAT?
VAT is a tax chargeable on taxable supplies made in the UK by taxable persons. Credit is given for tax paid to other businesses and the net balance is payable or reclaimable - normally on a quarterly basis. Taxable persons
A taxable person is any person carrying on a business which is, or is required to be registered for VAT and includes the following: If you suspect VAT fraud|
You can report a suspected VAT fraud on Customs Confidential hotline on 0800 595 0000 begin_of_the_skype_highlighting 0800 595 0000 end_of_the_skype_highlighting. The line is open 24/7. You will not be required to provide your personal details.| * An individual
* A partnership
* An unincorporated association, e.g. trust or charity
* A limited company
* A limited liability partnership
VAT law covers all types of supply of goods or services (outputs), whether of a revenue or capital nature. Supplies include sale, hire, or loan of goods. Outputs normally fall into four categories: 1. Positive rated - taxable at applicable VAT rates.
2. Zero rated - including socially or economically important items, e.g. exports, most food, books, newspapers, public transport, drugs on prescription, children's clothing 3. Exempt supplies - including necessities such as insurance, postage, finance, education, and health 4. Some receipts are outside the scope of VAT, e.g. dividends, shares of profit compensation for losses, non UK supplies Should I be registered for VAT?
You should notify HM Revenue & Customs when:
* Taxable turnover for the past twelve months exceeds £70,000 * There are reasonable grounds for believing that your turnover for the next 30 days will exceed £70,000 In the first case, notification must be within thirty days of the end of the relevant month. In the latter case, notification must be within thirty days of the date on which grounds first existed. It is important to monitor turnover because there is a penalty for late registration. This is in addition to the tax payable. Can I register for VAT if my taxable turnover does not exceed the prescribed limits? It is possible to register voluntarily provided you have a bona fide business. Cash accounting scheme
There is a special scheme applicable to businesses where taxable turnover is expected to be not more than £1,350,000 in the next 12 months. This allows the trader to account for VAT on the basis of payments received and made rather than on tax invoices issued and received. It may be advantageous to use cash accounting from the date of registration, although some businesses will not benefit from this scheme. Retail schemes
Special schemes of accounting for VAT are available to retailers. We can advise on the best choice. Credit for input tax
Input tax paid on purchases can be recovered by registered taxable persons, who are able to offset input tax against their output tax liabilities. Traders with fully exempt outputs cannot register or reclaim any input tax. Credit is available for all VAT paid on inputs where a VAT invoice is available, except for tax on private expenditure, business entertainment, motor cars, certain building materials, and goods bought under a second-hand goods scheme. Recovery of input tax may be restricted if the business makes both taxable and exempt supplies. How often will I have to complete a VAT return?
Every quarter, a return is issued and must be submitted with any payment due to HM Revenue & Customs no later than thirty days from the end of the quarter. Make returns and payments on time because extensive legislation exists to levy penalties on defaulters. Businesses with regular repayments may make...