VAT Registration

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:

• An individual
• A partnership
• An unincorporated association, e.g. trust or charity
• A limited company
• A limited liability partnership
• Supplies

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:

• Positive rated - taxable at 17.5% or 5%
• Zero rated - including socially or economically important items, e.g. exports, most food, books, newspapers, public transport, drugs on prescription, children's clothing
• Exempt supplies - including necessities such as insurance, postage, finance, education, and health
• 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 £64,000
• There are reasonable grounds for believing that your turnover for the next 30 days will exceed £64,000
• Cash accounting scheme

There is a 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.

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. 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 monthly returns. Those using the Annual Accounting Scheme need make only one return per year, which has to be submitted two months after the end of the scheme year.

Can I file my VAT return online?

A service for online filing VAT returns is now operational.

Tax invoices

Specific rules are laid down as to the form and content of tax invoices. These are to ensure that all the necessary information is recorded for the determination of the rate of tax to be applied, the liability of the supplier to account for the output tax due on the supply, and the entitlement of the recipient to reclaim all or any of it as input tax.

There is no requirement to issue a tax invoice for a zero-rated or exempt supply. Copies of all tax invoices issued and received must be retained for at least six years.

A tax invoice is required to show:

• An identifying number
• The date of the supply and the date of issue of invoice
• The name, address, and registration number of the supplier
• The name and address of the person to whom the goods and services are supplied
• A description that is adequate for the purposes of identifying the goods or services supplied
• 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
• The total amount payable excluding tax
• The rate of any cash discount offered
• The total VAT payable