A taxable person is defined as
one of the following carrying on a business:
·
An individual
·
A partnership
·
An unincorporated association, e.g. trust or
charity
·
A limited company
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. Output normally falls into four
categories:
1.
Positive rated - taxable at 17.5% or 5%
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:
·
Vatable 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
In the first case,
notification must be within thirty days of the end of the relevant months. 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 vatable turnover does not exceed the prescribed limits?
It is possible to
register voluntarily provided you have a bona
fide business.
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.
Special schemes of
accounting for VAT are available to retailers. We can advise on the best
choice.
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 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.
We would be pleased
to advise you what records you need to keep to complete the VAT return.
Can I file my
VAT return online?
A service for online
filing is now operational. For details visit www.hmrc.gov.uk.
When can, or
must, I deregister?
·
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 £62,000, but this may not be in your interests – seek our advice
first
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. However,
it would seem appropriate to issue some form of invoice for either type of
supply to establish that VAT is not chargeable on it.
Copies of all tax
invoices issued and received must be retained for at least six years unless a
shorter period (normally at least three years) is agreed with HM Revenue &
Customs.
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, a unit 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
Anyone supplying goods or
services direct to the public does not have to supply a tax invoice unless the
customer requires one. Where the tax-inclusive value of supply is not more than
£250, the supplier may issue a simplified form of invoice giving only the
following details:
·
Name, address and registration number of the retailer
·
Date of supply
·
A description, adequate to identify the goods or
services supplied
·
The total amount payable including tax
·
The rate of tax at the time of the supply
Cheques or postal orders sent by
post need to be received by the standard due filing date of the relevant VAT
Return.
For electronic payments (e.g. by
telephone or internet banking, or bank giro credit) up to 7 extra calendar days
are allowed for the return and payment (cleared funds) to reach HMRC. If the 7th
day falls on a weekend or bank holiday, payment must be made by the previous
working day.
The extended time is not
available for those using the Annual Accounting Scheme or for those submitting
a ‘Nil’ or claim return.
Payment by Direct Debit is
available to those who submit returns electronically. In this case, as well as
the extra 7 calendar days there will be a further 3 working days before payment
is collected from the payer’s bank account.
Please contact us if you would
like further help or advice.
