Tax Notes

Zero rate = 0%

Main items include:

• Most food (except where supplied in the course of catering, or a non-essential item e.g. chocolate, ice cream, alcoholic drinks, crisps)

• Young children’s clothing & footwear

• Transport (but not taxis or hire cars)

• Drugs and medicines on prescription and many aids for disabled people

• Books and newspapers (but not stationery)

• Water supplies

• Sales and long leases of new houses

Input Tax

Each person in the chain between the first supplier and the final consumer is charged VAT on taxable supplied to him/her.

e.g. A brickmaker buys clay costing 1,000 + VAT from a quarry (input tax = 200)

Output Tax

Each person in the chain between the first supplier and the final consumer charges VAT on taxable supplies made by him/her.

e.g. The brickmaker sells bricks to builders merchant for 2,500 + VAT (output tax = 500)

Recoverable Expenses

• Input tax can be recovered on goods acquired for resale, expenses (i.e. telephone, stationery, photocopying), and capital items.

• Such expenditure must be incurred in the course of business and must not be excluded by legislation (e.g. entertainment expenses are excluded).

“Taxable Supplies”

VATA Sch 2 & s.4(2)

Goods = All supplies of goods (including goods taken for own use by a business proprietor) which involves the transfer of the whole property, are taxable supplies apart from items which are specifically exempt.

Supplies = All supplies which are not supplies of goods but which are for consideration are supplies of services apart from those which are specifically exempt.

“Exempt Supplies”

VATA Sch 9

Exempt supplies are broadly supplies of:

• Selling, leasing and letting land and buildings (but not lettings of garages, parking spaces or hotel and holiday accommodation)

• Insurance

• Postal Services (but not telephone)

• Certain education and training

• Betting Lotteries and Gaming (but not gaming machine takings, admission to premises, club subscriptions)

• Services of doctors and dentists

• Certain supplies by undertakers

• Provision of credit

Compulsory Registration

You must register for VAT with HMRC if your business’ VAT taxable turnover is more than 85,000. On registration, you receive a VAT registration certificate which confirms:

• the VAT number

• when to submit the first VAT Return and payment

• the ‘effective date of registration’ – i.e. the date the business went over the threshold, or the date of request to be registered if it was voluntary.

Voluntary Registration

If the turnover is less than 85,000, unless everything you sell is exempt, you may still register. However, this brings certain responsibilities, namely to:

• charge the right amount of VAT

• pay any VAT due to HMRC

• submit VAT Returns

• keep VAT records and a VAT account.

VAT Accounts, Tax Periods, and Tax Returns

• The VAT results for each tax period must be summarised in a VAT account.

• Form VAT100 (return form) is received from HMRC for each tax period (usually 3 months).

• The return must be completed and returned within one month from the end of the tax period together with payment for any VAT due (either by cheque or electronically).

• If input tax > output tax for the tax period, a claim for repayment should be made.