If you run a business and you need to calculate your VAT, make sure that before you do so it is worth using an accountant to get them input. As calculating and filing VAT can be tricky for those with no experience this blog will tell you how to correctly file your return as well as what the government expects of companies that are registered in the UK.
If however, you are not a company but just looking for information on how to claim vat then this article tells you everything about Vat, what should be included in your return when filing live, how much money to claim VAT on and more. There is also ongoing advice from HMRC on filing your return online or by phone.
A company is defined as an institution with a legal identity separate from that of its owners (for example, a partnership or a limited liability company), and provided that it has been constituted according to the law in force in the UK. It must also be registered under the Companies Act 2006 (as amended), but most small businesses are not required to register.
For VAT purposes, a “business” is an organisation carrying on business, whether or not it is trading and whether or not it can be said to have any profits at all.
The main types of business are:
Private individuals who sell goods or services will normally be liable to charge VAT and the same applies if they sell a property such as a second home. The seller will be treated as being in business for VAT purposes and must register for VAT, even if they do not otherwise trade. If the sale does not include other goods or services (eg the sale of just one item) then there is no requirement to charge VAT.
Businesses that supply land, buildings, plant, machinery or equipment for use outside the European Union are entitled to claim back import VAT on those items from HMRC. This may also apply to imports from the Channel Islands where UK legislation applies.
A business which has not been registered as a VAT-registered trader is intended to be exempt from VAT, unless it qualifies for registration. The main types of business are:
The main types of business are:
Some organisations covered by the Income Tax Acts 1994-2003 (referred to in the Act as “accredited bodies”) are not required to charge VAT. These include charities, social clubs and some community amateur sports clubs.
An organisation must be registered with the Office of Tax Simplification (OTS) to claim VAT if its activities involve:
VAT is charged by private sector bodies such as charities, social clubs and some community amateur sports clubs. However some activities that are taxable under the Income Tax Acts 1994-2003 (referred to in the Act as “accredited bodies”) are not charged VAT. These include charities, social clubs and some community amateur sports clubs.
Charities are exempt from VAT if supplying only goods or services for charitable purposes. To qualify as a charity they usually require a donor- advised fund, however they can also act as volunteers.
Social clubs are exempt from VAT if they supply only goods or services for social purposes. To qualify as a social club they usually require a membership list, however they can also act as volunteers.
To be recognised as an accredited body the organisation must provide proof of public benefit, which will normally consist of the following:
For charities and social clubs there is a time limit of 12 months on registration with HMRC. They must start operating the VAT scheme within 6 months of registration, and must register annually thereafter.
If the organisation has not been registered as a VAT-registered trader then it is an exempt charity or social club. It will normally be exempt from VAT. However, sometimes there are still restrictions on how much you can give away to charities or social clubs in cash, so they may prefer to make a donation by cheque.
A company must be registered to supply goods and services for business purposes if it is in the business of supplying goods and services for payment. This includes supplying digital products and digital supplies (such as music downloads). A company does not need to register as long it is supplying for business purposes but needs to account for VAT on any supplies made.
To register as a supplier of goods and services for business purposes the company has to complete a form, called Form VAT12. This is then submitted to HMRC at TSO.
In the UK any VAT turnover is charged at 20%. Small businesses are allowed to claim back VAT paid on their operating costs, such as energy and water usage. These can be claimed as an input tax credit (ITC) on an annual basis, allowing small businesses to reduce their tax liability by offsetting future annual VAT liabilities with past year’s losses.
All businesses with an annual turnover of less than £81,000 are required to charge business users for VAT. This includes employees directly involved in the commercial activities of the business, such as managers, directors and start-up staff.
These supplies are usually referred to as VAT-registered supplies and they include services such as accounting and legal services provided to a VAT-registered trader. Income tax is deducted from the VAT payable which will reduce the amount of tax that must be paid at 20% over a period of time.
VAT schemes for small businesses were first introduced by Margaret Thatcher’s government. They claim that companies with low turnover will pay lower taxes than larger companies because there is less money to redistribute between departments.
However, small businesses have to charge VAT and are unable to claim back VAT on business expenses. This means that they must either raise their prices to reflect the amount of VAT paid or try to make a profit by cutting down on expenses, hiring fewer staff or paying lower wages.
A UK-based company can register for VAT voluntarily if it expects its annual taxable turnover (“which may include zero-rated and exempt supplies”) within the EU will exceed the threshold of £77,000 for the next 12 months. To register they must submit form VAT100 to HMRC at TSO.
If a UK-based company wants to trade in the EU by trading with an EU member state, it must register for VAT under the scheme known as input tax. The UK is one of two member states with such a regime (the other is Denmark). The minimum requirement for registration under the scheme is to apply to HMRC at TSO.
A UK company can voluntarily register for VAT at any time. They must submit a form, called Form VAT1, to HMRC at TSO within 60 days of becoming registered. If the turnover exceeds £60,000 they will be required to submit Form VAT12 (see above) instead.
Unincorporated UK companies do not pay VAT and don’t have to register for VAT. They must, however, use the services of incorporated companies (such as commercial agents) to file their VAT returns.
VAT is charged on the sale of most services in the UK. Sales between private individuals are subject to VAT at 20%, but there are several exemptions from this rule. They include:
The parent/holding company (“Nominee”) may be liable for any under-declaration of turnovers or VAT due over periods of up to 12 months (its annual turnover). A “Nominee” is a firm that purchases goods or services from other suppliers and resells them on its own account.