Introduction to VAT in the UK
VAT is a shortened form of Value Added Tax and was introduced in the UK in 1973. It is one of the most important taxes in the UK. VAT is a consumption tax added on goods and services levied at each stage of the supply chain to the point of sale. VAT is to be collected by the VAT-registered businesses and is payable to HMRC at each stage of VAT added, but ultimately is paid by the final consumer.
- VAT Rates
The goods and services for each VAT rates listed below is not a complete list for all categories.
(1)
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Standard rate: 20%
Most of goods and services
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(2)
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Reduced rate: 5%
Welfare: Mobility aids for the elderly; Smoking cessation products ?nicotine patches and gum
Power: Electricity, gas or heating oil for domestic and residential use or for non-business use by a charity
Safety equipment: Children's car seats, booster seats and booster cushions
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(3)
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Zero rate: 0%
Welfare: Building services for disabled people; Equipment for disabled people; Equipment for blind or partially sighted people
Transport: Aircraft repair and maintenance
Publications: Books; children’s painting and picture books; magazines; printed or copied music
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(4)
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Exempt:
Financial services and investment, insurance and health care, public postal services and stamps
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(5)
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Outside the scope of VAT:
Tolls for bridges, tunnels and roads operated by public authority
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For more details, please visit https://www.gov.uk/guidance/rates-of-vat-on-different-goods-and-services
- When to register for VAT
(1)
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A business that may generate taxable activities within the UK can voluntarily register for VAT.
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(2)
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When a business's turnover for 12 consecutive months reaches GBP85,000 (the current VAT threshold), VAT registration must be submitted within 30 days of the end of the month, and the effective date of registration is the first day of the second month after the business go over the threshold.
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(3)
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If a business realises the turnover will go over the GBP85,000 threshold in the next 30 days, the business has to register by the end of that 30-day period.
For example, a company entered a contract of GBP90,000 on 1 May. Payment is due by the end of the month. Based on the contract date, VAT registration must apply to register on 1 May by 30 May.
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(4)
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When a company takes over a business, the acquiring company must register for VAT if
- the sold business was VAT registered, or
- the combined taxable turnover of the two businesses is over the threshold.
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(5)
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Non-UK-based companies and non-UK-based persons must register for VAT (regardless of the VAT taxable turnover) in the UK if supplying goods or services to the UK. This overseas company is considered as a Non-established taxable person (NETP) who needs to appoint a tax representative (jointly and severally liable for VAT liabilities) or an agent (without joint and several liability).
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A registration 'exception' can be applied if taxable turnover is over the threshold temporarily, evidence showing turnover in the next 12 months will not go over the deregistration threshold of GBP83,000 needs to be provided, then HMRC will write to confirm if an 'exception' will be granted, if not, VAT is registered instead.
- Option to Tax
A property investor can apply 'option to tax' for a commercial building, not residential property. Once 'option to tax' is approved, VAT must be charged on any rents and services charged to tenants and any sale of leases or property in the future. On the other hand, most of those costs with VAT spent on running the opted rental business can be recovered.
However, VAT on a property can be a very complex subject. Each property has its unique condition. Thus, it is vital to consider the costs and benefits before applying 'option to tax'.
- VAT Registration
UK companies can sign up a VAT online account and apply for VAT registration. However, to appoint an accountant as an agent can help:
(1)
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to analyse the best time to do the application
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(2)
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to register the VAT application
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(3)
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to liaise with HMRC on behalf of the business.
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Third-party agents often have professional qualifications and experience, and the probability of being granted a VAT number is far higher than their self-application.
- After Registration
After registration, the company will get:
(1)
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A 9 digits VAT number, which needs to be presented on every sales invoice |
(2)
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Information on when to submit the first VAT return and payment |
(3)
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Registration effective date |
- VAT Submission
Usually VAT submission is done quarterly. The deadline for submitting a VAT return online is one calendar month and 7 days after the end of a VAT period. This is also the deadline for paying HMRC. For example, The 2022 first quarter return includes January, February and March, and the deadline for submitting VAT return and paying HMRC is 07 May 2022.
If the company is registered for VAT, they must submit a VAT Return even if there is no VAT to pay or reclaim.
- Making Tax Digital (MTD)
MTD for VAT requires business owners to file VAT returns online using HMRC-recognised software. To ensure businesses meet her requirement, HMRC requires all VAT Returns must use MTD Software to keep digital records.
A business still needs to submit a VAT Return by HMRC-recognised MTD bridging software even when that business wants to keep using spreadsheets instead of full MTD software.
- Surcharge and Penalties
Failure to submit VAT returns and settle any outstanding VAT payments on time may result to begin a 12 month 'surcharge' period. A surcharge is an extra amount on top of the VAT amount is owing
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Defaults within 12 months
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Surcharge if annual turnover is less than GBP150,000
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Surcharge if annual turnover is GBP150,000 or more
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1st
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No surcharge
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No surcharge
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2nd
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No surcharge
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2% (no surcharge if this is less than GBP400)
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3rd
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2% (no surcharge if this is less than GBP400)
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5% (no surcharge if this is less than GBP400)
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4th
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5% (no surcharge if this is less than GBP400)
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10% or GBP30 (whichever is more)
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5th
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10% or GBP30 (whichever is more)
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15% or GBP30 (whichever is more)
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6 or more
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15% or GBP30 (whichever is more)
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15% or GBP30 (whichever is more)
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To mitigate default surcharges a business must show a reasonable excuse for the default by way of appeal.
Penalty can be charged up to 100% of any tax under-stated/over-claimed on an inaccurate return or 30% of an assessment if a business failed to response within 30 days
- Payment Terms and Methods
Upon receipt of your confirmation of engagement, full payment in advance is required as once the service commenced, no refund of the service fee can be made.
We accept cash, HKD check, TT, and credit card through Paypal. An extra handling fee of 5% will be charged if paid by Paypal. Please put our invoice number on the message section when making payment and send a copy of the remittance receipt to us for our records.
- Kaizen's Service Fee
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No.
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Service
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Fee (GBP)
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1
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VAT Registration
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300
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2
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VAT Return (per filing)
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150 +
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3
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VAT Registration Cancellation
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300
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