What is VAT?

VAT (Value Added Tax) is a tax that applies to most products and services sold by businesses that are registered for it.

Businesses must register for VAT if their taxable turnover exceeds £90,000. They also have the option to register even if their turnover is below £90,000 with different vat rates.

What does VAT stand for?

VAT is an acronym for Value Added Tax and was introduced in the UK in 1973.

What is the VAT rate?

There is Three VAT rates charged in the UK, and each rate depends on the goods or services being provided. The detail is given in table below.

Sr.No	Rate	Charge	Applied to
1	Standard	20%	Most goods and services
2	Reduced	5%	Some goods and services such as home energy, children’s car seats, residential property conversions, etc.
3	Zero	0%	Most foods and children’s clothing

Exemption from VAT UK

Not all sales are subject to VAT. Some are either exempt or outside its scope. For example:

• Insurance
• Health care
• Postage stamps
• Education
• Statutory fees
• Goods or services bought and used outside the UK
• Donations to charities

Registering for VAT

VAT applies companies, partnerships, and sole traders.

Voluntary registration

Any business with a turnover below the threshold can choose to register for VAT. This is known as voluntary registration. Advantages of voluntarily registering for VAT include reclaiming VAT on purchases and creating a more trustworthy image for your customers.

What is the method of accounting for VAT?

Two of the most common VAT accounting methods are cash accounting and accrual accounting. In general VAT is calculated on the basis that the VAT you pay to your suppliers is deducted from the VAT you collect from your clients (Output VAT), using correct vat rates such as standard (20%), reduces (5%), or zero (0%).

What is a VAT return?

A VAT return is a form you file with HMRC, usually four times a year, to show how much VAT you are due to pay them. If you’re not registered for VAT, you won’t file VAT returns.

What is a VAT Number?

A VAT number is a unique code issued to a company that is VAT-registered, also known as the VAT Registration Number. This number is 9 digits long and typically starts with “GB.” When a company registers for VAT, HMRC provides a VAT registration certificate that displays their VAT number.

How to Check if a UK Company is VAT Registered

You can verify if a UK company is VAT registered using a service on the UK Government website. This service allows you to check if a VAT registration number is valid and look up the business name and address associated with the number. However, it does not allow you to keep a record of when you checked a UK VAT number.

The Importance of VAT Registration and Potential Penalties

VAT registration is a legal requirement, and not complying can result in penalties or, in severe cases, imprisonment.

HMRC calculates the penalty for late registration as a percentage of the VAT owed (output tax minus input tax) from the date the business should have registered until HMRC is notified or becomes aware of the requirement. The penalty rate depends on how late the registration is:

If registered	Penalty rate
No more than 9 months late	5%
More than 9 months but not more than 18 months late	10%
More than 18 months late	15%

Can you claim VAT back in the UK?

You can reclaim VAT on business-exclusive goods and services, such as computers, office furniture, transportation, and third-party vendor costs. However, VAT on personal use items and business entertainment cannot be reclaimed. Reclaiming VAT involves completing a quarterly VAT Return and can be complex, so consulting a qualified business tax expert is recommended.

Do charities pay VAT?

Businesses, including charities and their trading subsidiaries, must register for VAT if their sales exceed the UK VAT threshold. Charities might qualify for VAT relief and can reclaim some VAT from HMRC; consulting a tax expert is advised.

How to get VAT advice

Ahmad Gardazee will help all areas of VAT, including:

• initial registration
• the completion and submission of VAT returns
• advice on how to correct errors and mistakes
• assessments
• control visits
• cross border transactions