You may know by now that dealing with VAT compliance can be a headache for VAT registered businesses. But fear not, because we have the must-knows about UK VAT ready for you to explore. Don’t miss out, and keep reading to learn more!
What you need to know for your VAT-registered business
Value Added Tax (VAT) is a complex and ever-changing business aspect. As a VAT-registered business owner, you must comply with VAT regulations by HMRC (HM Revenue & Customs).
But as we all know, managing the ins and outs of VAT can be a tedious task, especially if you are just a newly VAT-registered business. So, in this blog, we will explain what you need to know about VAT.
After reading, you should comprehensively understand VAT and the essential knowledge needed to navigate it effectively. Whether you are just starting or need a refresher, read on as we dive deep into VAT for business.
When to charge customers for VAT?
You must charge your customers VAT for every sale of goods or services. The VAT rate to be applied depends on the type of product or services you are selling, and we will discuss further the applicable VAT rates for different goods and services.
For charging VAT on your sale, you must provide your customers with a detailed price breakdown so they know precisely what they are paying for.
When to claim back paid VAT?
To lower your VAT liability, which is the total amount you collected from customers or Output VAT, you can claim back the VAT you paid on your purchases by declaring it to your VAT return. This claimable amount is also called Input VAT.
Generally, your purchases and expenses can be counted as input VAT if:
- You have a valid VAT invoice for the purchase
- The purchase was made for business purposes and not personal use
- The purchase is eligible for VAT reclaims (not all goods and services are eligible).
What goods and services are subject to VAT, and what are the current VAT rates?
The rules around what goods and services are subject to VAT can be complex, so you need to understand the guidelines set out by HMRC.
But we will make it easier and comprehensively explain the different VAT rates and what goods and services fall under each.
The standard VAT rate is currently at 20% and applies to most goods and services not qualified for reduced or zero-rate VAT and are not exempt. Some examples of items charged with a 20% standard VAT rate are:
- Electronic goods such as laptops, smartphones, and tablets
- Household appliances like television, washing machine, and refrigerator
- Furniture items like sofas, mattresses, and tables
- Clothing items for adults, examples are suits, dresses, and sweaters
- Vehicles like cars, vans, and trucks
- Building materials, including bricks, cement, and tiles
- Printing and advertising services like brochure design and printing, advertising campaigns, and billboards
- Consulting and accounting services like legal advice, financial planning, and tax services
- Hospitality services such as hotel accommodation, restaurant meals, and alcoholic drinks
- Sports and leisure services like gym memberships, swimming pools, and golf courses
- Entertainment services, including cinema tickets, concert tickets, and theatre performances.
The reduced VAT rate of 5% applies to specific goods and services deemed essential, beneficial, or energy-saving. Here are some examples that are eligible for this rate:
- Women’s sanitary products like tampons and sanitary towels
- Mobility aids such as wheelchairs and crutches
- Children’s car seats and booster seats
- Domestic fuel and power such as gas, electricity, and heating oil
- Energy-saving products such as solar panels, wind turbines, and insulation materials
- Protective equipment such as helmets, safety boots, and high-visibility clothing
- Medical and sanitary products such as contraceptive devices, nicotine patches, and incontinence products
- Installations of energy-saving materials such as double glazing, boilers, and draught-stripping
Zero-rated goods and services are considered taxable by the government, but they are currently subject to a 0% VAT rate.
This rate is applied to certain goods and services to provide relief to consumers and businesses who may otherwise face a significant financial burden; that is why you may notice that the listed items below are mostly essential needs:
- Basic food items like bread, milk, and vegetables
- Books, newspapers, and magazines
- Children’s clothing and footwear
- Prescription medicines and medical equipment
- Supplies of equipment to disabled people
- Exports to countries outside the EU
- Construction services for new residential buildings and certain conversions of existing buildings
- Public transport services such as buses, trains, and trams.
VAT registered businesses: VAT Exempted Goods and Services
VAT-exempt goods and services in the UK are not subject to VAT. Businesses that supply/provide purely exempt products/services should not be registered with VAT as they will not pay nor claim back VAT in the first place.
Here are some examples of VAT-exempt goods and services:
- Education and training services provided by eligible bodies, such as universities, colleges, and schools
- Health services provided by doctors, dentists, and other medical professionals
- Insurance and finance services, including specific financial transactions and services provided by insurance companies
- Postal services provided by Royal Mail
- Some types of land and property transactions, including the sale or lease of land and some types of property rental
- Betting, gaming, and lotteries, including the National Lottery
- Certain types of cultural and artistic events, including exhibitions, concerts, and performances
Frequently Asked Questions
How to claim input VAT if I sell a mix of taxable and exempt supplies?
If this is the case, you can only claim a portion of your input tax. To know how much it is, you need to identify what purchases you have made to produce taxable supplies or render taxable services.
Can I claim back VAT on purchases made before I registered for VAT?
Yes, you can claim back VAT on purchases of goods made up to four years and services up to 6 months before you become a VAT-registered business, as long as proven currently held and used for business purposes.
Do I need to charge VAT on delivery charges?
In most cases, if you are charging for delivery as a separate service, you will need to charge VAT on the delivery charges.
However, if the delivery is included as part of the overall price of the goods, and is not separately itemized, then you do not need to charge VAT.
Understanding how VAT works can be vital for any business owner to ensure compliance with tax regulations. We covered various essential VAT topics to help you, but seeking advice from qualified professionals for better guidance is recommended.
Check out Sterlinx Global for more valuable tax advice for your business.
How Do You Know How and When to Pay Your UK VAT? Easiest ways to know to file your VAT
VAT in the UK: When to preferably talk to Professional Accountant or Tax Adviser
What needs to be included on a VAT invoice? – An Easy Guide for Business Owners