- Should I Be Registered for VAT?
- VAT registration threshold
- Deregistration threshold
- What is the cash accounting scheme?
- When might I face a VAT penalty?
- What is the VAT penalty rate?
- I would like to know when purchasing goods and services, which have VAT added and which don't.
Should I Be Registered for VAT?
Value Added Tax (VAT) is a tax charged on the sale of most goods and services. Examples of taxable supplies include sale of goods, hire purchase, rental, exchange, and gifts in kind. These are charged at one of three rates:
- standard rate - see below
- reduced rate - 5 per cent
- zero rate - 0 per cent
Standard rate is:
- 17.5 per cent up to and including 30 November 2008
- 15 per cent from 1 December 2008 to 31 December 2009
- 17.5 per cent from 1 January 2010 until further notice
Services that are exempt include insurance, education and some sales & leases of property.
If you're in business, you must register for VAT if your VAT taxable turnover for the previous 12 months is more than £68,000. This figure is known as the VAT registration threshold. The threshold changes - usually once a year announced in the Budget - so you should regularly check your turnover against the current threshold.
You must also register for VAT if either of the following applies:
- you think your VAT taxable turnover may go over the threshold in the next 30 days alone
- you take over a VAT-registered business as a going concern
The deregistration threshold is £66,000. If your VAT taxable turnover for the year is less than or equal to £66,000, or if you expect it to fall to £66,000 or less in the next 12 months, you can either:
- stay registered for VAT
- ask for your VAT registration to be cancelled
If you decide to stay registered, you don't have to do anything.
If you want to cancel your VAT registration you must write to HM Revenue & Customs (HMRC) to explain why your turnover has fallen. For example, you might have reduced your opening hours or lost contracts. You'll also have to give an estimate of your turnover for the next year.
Remember that your VAT taxable turnover includes only the goods and services you sell that you have to charge VAT on, even those that are zero-rated. It doesn't include sales that are exempt or outside the scope of VAT.
What is the cash accounting scheme?
The cash accounting scheme allows you to account for VAT (output tax) on your sales on the basis of payments you receive, rather than on tax invoices you issue. This is different from the normal rules that require you to account for VAT on your sales as they take place or as soon as you issue a VAT invoice, even if your customer has not paid you.
However, if you choose to use the scheme, you can only reclaim the VAT incurred on your purchases (input tax) once you pay your supplier. Under the normal method of accounting for VAT you can reclaim VAT on purchases you make as soon as you receive a VAT invoice even if you have not paid your supplier.
When might I face a VAT penalty?
A penalty may be issued whenever there has been a significant or repeated lack of care in preparing VAT returns, leading to errors in the true amount of tax payable or repayable.
Where you submit an inaccurate VAT return which:
- shows too little tax due; or
- claims a repayment which is too large;
- you may be liable to MP or MP(R).
- you have not submitted a return; and
- we assess you for the tax due for the period; and
- you fail to tell us within 30 days that the assessed amount is too low;
- you may be liable to MP (but not MP(R)).
However, both of these penalties are subject to objective tests.
I would like to know when purchasing goods and services, which have VAT added and which don't.
If VAT has been added, traders are obliged by law to show this on your receipt.
The exact method varies - if you have your car serviced, you would expect to see the amount of VAT set out separately and the rate shown. If you go to a supermarket, they may just indicate by putting a star against the VAT registered items.
A Valid VAT receipt must show the VAT registration number, which is nine digits long.