What is VAT?

Valued-Added Tax (VAT), is the tax added to goods and services. A lot of the time, we do not even know we are paying VAT on goods or services as it is added onto the price. There are different rates of VAT which you can find on Ember these are:

  • Standard Rate - 20%

  • Reduced Rate - 5%

  • No VAT (Outside Scope)

  • Zero Rate - (0%)

  • Exempt

  • Reverse Charge (20%)

Registering for VAT

There are 2 conditions to which a company must register for VAT by law, there are:

  1. Historical Turnover Condition: At the end of the calendar month the value of supplies that are "taxable" for the 12-month period that ends at during that time or the period of time of less than 12 months since the business started. If the business has exceeded the specified limit.

  2. Future Turnover Condition: If the company believes the value of its supplies that are "taxable" for the next 30 days will exceed the specified limit. This is known as the future turnover condition.

The specified limit is £85,000

Once the historical turnover condition happens for a company, its required to register for VAT within 30 days of the end of the month. Once this happens, the company is then registered with effect from the first day of the next but one month, or an earlier date agreed with HMRC.

Once the future turnover condition happens for a company, its required to register for VAT before the end 30-day period ends. Once this happens, the company is then registered from the start of that period.

There is the possibility of a penalty being charged for registering late which is calculated by reference to the potential lost revenue.If a company fails to register for VAT by the required date, it can be a costly mistake.

What are taxable supplies?

Taxable supplies are supplies that would be taxed at either the standard rate, the reduced-rate or the zero-rate. There are however some supplies that do not count when calculating the VAT such as:

  • Exempt supplies (financial services, insurance, health, education, etc.)

  • Supplies relating to capital assets (i.e. homes, cars, etc.)

  • Distance sales that are treated as supplied in another EU country

  • Supplies of distance sales made by an overseas person in the UK

  • Supplies made outside the UK that are outside the scope of UK VAT.

Voluntary registration for VAT

A company can register for VAT voluntarily, the reasons a company might do this could be either:

  • Ease of administration (if registration is a formality at some point for the company, early registration prevents the need to keep on eye on turnover frequently)

  • Preventing a possible penalty for late registration (HMRC can issue a penalty if a person does not register for VAT on time) - Registering for VAT voluntarily should prevent the chance of getting such a penalty.

  • Having a VAT registration number could help the companies image to prevent it from looking like a small operation

  • Recovering VAT on certain costs. A person making supplies to taxable persons, who can recover any VAT charged, usually seek registration, so as to recover input tax on costs such as start-up costs.

If this did not answer your question, please reach out to our talented team of qualified accountants who are always on hand to offer expert advice as and when you need it.



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