VAT stands for Value Added Tax. It is the tax that is charged on most services and goods that are VAT registered businesses provide in the UK. VAT is also charged on goods and some services bought from other counties outside the UK. You can charge VAT on things like:
– Commission
– Business goods used for personal reasons
– When you sell services or goods
– Things you sell to your staff
– Selling business assets
– Hiring or loaning goods to someone
Who charges VAT?
VAT can only be charged by a VAT registered business, known as a ‘taxable person’. This includes individuals, companies, partnerships, charities, clubs, and associations. When becoming a VAT registered business, you must charge VAT on your goods and services and also you may reclaim any VAT that you have paid on the business that related to the goods or services that you sell. You must register for VAT if your taxable turnover goes over the threshold. The taxable turnover is the total value of the taxable supplies you make excluding VAT. Until you go over the threshold, registration is optional. In case of turnover under the threshold, You can register on a voluntary basis.
VAT Rates
With VAT, you don’t just have the one rate, you have 3 and they are used for different things. He rates are:
– Standard Rate – 20%
– Reduced Rate – 5%
– Zero Rate – 0%
Standard Rate
Most goods or services have the standard rate. You need to charge at this rate unless the goods and services that you sell are in the Zero or Reduced rate.
Reduced Rate
When you charge at this rate, it depends what sort of item you are selling and what circumstances it is used for. Mobile aids for older people are only charges at 5% if they are used for someone 60 and the goods are installed for them in their home. Also if you have children then the child’s car seat is at 5% and power or domestic fuel is charged at this rate too.
Zero Rate
Zero rated means that you can still charge VAT on goods and services but you must charge your customers at 0%. You will still have to record VAT in your accounts and report them on your VAT returns. Here are some goods and services that are zero rated:
– Most goods you export to non-EU countries
– Children’s shoes and clothes
– Newspaper and books
– Good you supply to a VAT registered EU business
– Motorcycle helmets
What to do when charging VAT
When selling your goods or services you must charge the correct VAT for that item. When you charge it correctly you can claim it back onto your purchases. You can’t claim all of the VAT back if you have paid the wrong amount of VAT on a purchase. If a transaction is Zero rated, reduced or standard taxable supply, you must:
– Charge the correct rate of VAT
– Work out the VAT if a single price is shown
– Show the VAT information on the invoice
– Show the transaction in your VAT account
– Show the amount on your VAT Return
