VAT
Value Added Tax (VAT) is charged on most business-to-business
and business-to-consumer transactions in the
UK and on goods and some services, imported from
other European Union (EU) countries and from
outside the EU.
VAT is charged to a buyer by a VAT-registered
seller. It is reclaimed by a VAT-registered buyer
after goods and services are purchased. VAT registration
is required if turnover for the previous 12 months
is over a specific limit – currently £67,000 – or
if turnover is likely to soon exceed this limit.
There are three different rates of VAT, which
apply to different types of goods and services:
- standard rate: currently 15% but normally
17.5%. The standard rate will change
back to 17.5% on 1 January 2010. This
rate applies to all goods and services unless
they are zero rated, reduced rate or exempt.
- reduced rate: 5% this is charged on items
including domestic heating fuel, children’s
car seats, nicotine replacement products to
help people stop smoking
- zero rate: including books and newspapers,
protective boots and helmets for industrial
use, children’s clothing and footwear
and water supplies.
If you are registered for VAT, you must keep
certain business records and VAT records of your
sales and purchases. You must also keep a separate
VAT account.
How to pay: At the end of each VAT period – usually
every three months – you need to fill in
a VAT return. A VAT return tells HM Revenue & Customs
(HMRC) how much VAT you charged to your customers,
how much VAT you paid to your suppliers and the
amount of VAT you must pay to or reclaim from
HMRC.
VAT returns are currently available in paper
and online formats but HMRC plans to phase out
paper VAT returns from 2010. From then, if your
turnover is over £100,000 – or if
you are newly VAT-registered – you will
have to file your VAT return online and pay VAT
electronically.
HMRC recommends that VAT payments are made electronically,
for example by Bacs, direct debit, Bank Giro
or telephone or internet banking. Post Office
payments also count as electronic.
VAT returns must be filed and any VAT owed paid
by the due date. Failure to do so can lead to
a surcharge of a percentage of the unpaid VAT.
The percentage of unpaid VAT charged will rise
if filing or payments continue to be late.
For more information, visit http://www.hmrc.gov.uk/vat/index.htm
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please contact us.
