Value Added Tax

VAT registered businesses act as unpaid tax collectors and are required to account both promptly and accurately for all the tax revenue collected by them.

The VAT system is policed by HM Revenue & Customs with heavy penalties for breaches of the legislation. Ignorance is not an acceptable excuse for not complying with the rules.

We highlight below some of the areas that you need to consider.

It is however important for you to seek specific professional advice appropriate to your circumstances.

Here are the VAT rates and dates of change

Date from

Date to

VAT Rate

Calculation fraction

4th January 2011

Time of writing

20%

1/6

1st January 2010

3rd January 2011

17.5%

7/47

1st December 2008

31st December 2009

15%

15/23

Here are some Important Figures for VAT

With Effect from

1st April 2012

1st April 2011

1st April 2010

Registration threshold

£77,000

£73,000

£70,000

De-registration threshold

£75,000

£71,000

£68,000

Cash Accounting Turnover threshold

£1,350,000

£1,350,000

 

Cash accounting Exit Ceiling

£1,600,000

£1,600.000

 

Flat Rate scheme Entry threshold

£150,000

£150,000

£150,000

Flat Rate Exit Ceiling

£230,000

£225,000

 

What is VAT?

Scope

A transaction is within the scope of VAT if

  • there is a supply of goods or services
  • made in the UK
  • by a taxable person
  • in the course or furtherance of business.

Inputs and outputs

Businesses charge VAT on their sales. This is known as output VAT and the sales are referred to as outputs. Similarly VAT is charged on most goods and services purchased by the business. This is known as input VAT.

The output VAT is being collected from the customer by the business on behalf of Customs & Excise and must be regularly paid over to them.

However the input VAT suffered on the goods and services purchased can be deducted from the amount of output tax owed. Please note that certain categories of input tax can never be reclaimed, such as that in respect of business entertainment and for most business cars.

Points you need to consider

Supplies

Taxable supplies can be standard rated (see table) or zero rated (0%) or for a very restricted range of goods and services Lower Rate.

There are certain supplies, which are not taxable and these are known as exempt supplies.

There is an important distinction between exempt and zero rated supplies.

  • If your business is making only exempt supplies you cannot register for VAT and cannot therefore recover any input tax.

  • If your business is making zero rated supplies you should register for VAT as your supplies are taxable (but at 0%) and recoverability of input tax is allowed.

Registration — is it necessary?

You are required to register for VAT if the value of your taxable supplies exceeds a set annual figure. New limits are announced in the Budget each year.

If you are making supplies below the limit you can apply for voluntary registration. This would allow you to reclaim input VAT, which could result in a repayment of VAT if your business was principally making zero rated supplies.

If you have not yet started to make taxable supplies but intend to do so, you can apply for registration. In this way input tax on start up expenses can be recovered.

Taxable person

A taxable person is anyone who makes or intends to make taxable supplies and is required to be registered. For the purpose of VAT registration a person includes

  • Individuals

  • Partnerships

  • Companies, clubs and associations

  • Charities.

If any individual carries on two or more businesses all the supplies made in those businesses will be added together in determining whether or not the individual is required to register for VAT.

Administration

Once registered you must make a quarterly return to Customs & Excise showing amounts of output tax to be accounted for and of deductible input tax together with other statistical information.

This must be completed within one month of the end of the period it covers (except for those on the annual accounting scheme who have two months - see below) and returned to the Central Unit based in Southend, together with any payment due.

Businesses who make zero rated supplies and who receive repayments of VAT may find it beneficial to submit monthly returns.

Businesses with expected annual taxable supplies under the current annual threshold (see table) may apply to join the annual accounting scheme whereby they will make monthly or quarterly payments of VAT but will only have to complete one VAT return at the end of the year.

Record keeping

It is important that a VAT registered business maintains complete and up to date records. This includes details of all supplies, purchases and expenses.

In addition a VAT account should be maintained. This is a summary of output tax payable and input tax recoverable by the business. These records should be kept for six years.

Inspection of records

The maintenance of records and calculation of the liability is the responsibility of the registered person but H M Revenue & Customs will need to be able to check that the correct amount of VAT is being paid over. From time to time therefore a VAT officer will come and inspect the business records. This is known as a control visit.

The VAT officer will want to ensure that VAT is applied correctly and that the returns and other VAT records are properly written up. They will discuss any VAT problems you may have and, if errors are found, advise on how to rectify them.

However, you should not assume that in the absence of any errors being discovered, your business has been given a clean bill of health.

Offences and penalties

Customs & Excise have wide powers to penalise businesses who ignore or incorrectly apply the VAT regulations. Penalties can be levied in respect of the following

  • Late returns/payments

  • Late registration

  • Errors in returns.

Cash accounting scheme

If your annual turnover is below the annual cash accounting threshold (see table) you can account for VAT on the basis of the cash you pay and receive rather than on the basis of invoices.

Retail schemes

There are special schemes for retailers as it is impractical for most retailers to maintain all the records required of a registered trader.

How we can help

Ensuring that you comply with all the VAT regulations is essential. We can assist you in a number of ways including the following.

  • Tailoring your accounting systems to bring together the VAT information accurately and quickly.

  • Ensuring that your business is VAT efficient and that adequate finance is available to meet your VAT liability on time.

  • Providing assistance with the completion of VAT returns.

  • Negotiating with HM Revenue & Customs if disagreements arise and in reaching settlements.

To find out more about how Handley Evans & Co can help you VAT contact us

Road Fuel Scale Charges

The table below shows the revised list of scale charges PER QUARTER and the output tax payable for the QUARTERLY accounting period.

These scale charges should be used from the start of your first accounting period beginning on or after the date shown in the column heading.

From

1st May 2012

1st May 2011

1st May 2010

CO2 Band

Scale Charge per car

Vat due at 20%

Scale Charge per car

Vat due at 20%

Scale Charge per car

Vat due at 20% From 4/1/11

Vat due at 17.5% To 3/1/11

120 or below

£160

£27.67

£157

£26.17

£141

£23.50

£21.00

125

£250

£41.67

£236

£39.33

£212

£35.33

£31.57

130

£266

£44.33

£252

£42.00

£212

£35.33

£31.57

135

£283

£47.17

£268

£44.67

£227

£37.83

£33.81

140

£300

£50.00

£283

£47.17

£241

£40.17

£35.89

145

£316

£52.67

£299

£49.83

£255

£42.50

£37.98

150

£333

£55.50

£315

£52.50

£269

£44.83

£40.06

155

£350

£58.33

£331

£55.17

£283

£47.17

£42.15

160

£366

£61.00

£346

£57.67

£297

£49.50

£44.23

165

£383

£63.83

£362

£60.33

£312

£52.00

£46.47

170

£400

£66.67

£378

£63.00

£326

£54.33

£48.55

175

£416

£69.33

£394

£65.67

£340

£56.67

£50.64

180

£433

£72.17

£409

£68.17

£354

£59.00

£52.72

185

£450

£75.00

£425

£70.83

£368

£61.33

£54.81

190

£467

£77.83

£441

£73.50

£383

£63.83

£57.04

195

£483

£80.50

£457

£76.17

£397

£66.17

£59.13

200

£500

£83.33

£472

£78.67

£411

£68.50

£61.21

205

£517

£86.17

£488

£81.33

£425

£70.83

£63.30

210

£533

£91.67

£504

£84.00

£439

£73.17

£65.38

215

£550

£91.67

£520

£86.67

£454

£75.68

£67.62

220

£567

£94.50

£536

£89.33

£468

£78.00

£69.70

225

£583.00

£971.17

£551

£91.83

£482

£80.33

£71.79

230

See above

See above

£496

£82.67

£73.87

For information of users:
This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.