What is VAT?
VAT is an abbreviation of "Value Added Tax". It is a tax that is paid by the final consumer on purchases, a VAT registered business has been often described as an unpaid tax collector for the government. Whist VAT is applicable in many countries around the world, this article focuses upon UK VAT.
Are all items sold in the UK subject to VAT?
Not all items sold, nor services delivered in the UK are subject to VAT. The legislation has items and services that are defined as being "outside the scope" of VAT. This means that no VAT is to be charged. There are also other items and services that are within the scope of VAT, but are subject to a rate of zero%, an example of this is non luxury foods (an important point to note is that, some foods are subject to zero% VAT whilst others are standard rated). People often view that when an item is outside the scope of VAT it is the same as being zero rated, this is not true and there are a number of important parts of VAT law that deal with this.
What are the current rates of VAT in the UK?
There are currently three rates of VAT in the UK:
- 17.5% (the 'standard' rate). Changing to 20% from 4 Jan 2011.
- 5% ('reduced' rate) and
- 0% ('zero' rate).
Who must register for VAT in the UK? This is a complex area but broadly speaking, if you are in any of the following scenarios then you normally need to register for VAT:
- The taxable turnover of your business in the previous 12 months reaches the VAT registration limit (£70,000 from 1/4/10), although you can also register on a voluntary basis if your turnover is below this.
- You believe your turnover in the next thirty days will exceed the registration limit.
- You take over a business as a going concern whose turnover meets the conditions of the previous two points.
- You buy goods from elsewhere in the EU to a value above the registration limit in one calendar year.
VAT is a complex and specialist area of taxation if you are in any doubt over how it applies to you or your business then it is recommended that you contact an accountant or VAT specialist with expertise in this area.
This article is an introduction only and it is envisaged that further coverage of different VAT issues will be considered in additional articles.
The author does not guarantee the accuracy of any information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and the rates and legislation associated with VAT will change.
