VAT is charged on taxable supplies of goods and services made in the UK by a taxable person in the course of any business carried on by him.  It can be advantageous for you to register voluntarily if the nature of your trade means that your costs or purchases include VAT. Never add VAT to your sales invoices UNLESS you are registered – to do so is a criminal offence. VAT is collected on business transactions, imports and acquisitions. Most business transactions involve supplies of goods or services. VAT is payable if they are:

• supplies made in the United Kingdom (UK) or the Isle of Man;
• by a taxable person;
• in the course or furtherance of business; and
• are not specifically exempted or zero-rated.

How many rates of VAT are there?

There are three rates of VAT:

• a standard rate, currently 17.5%;
• a reduced rate, currently 5%; and
• a zero rate.

What supplies are reduced-rated?

Supplies of these goods and services are currently charged at the reduced rate:

• domestic fuel or power;
• installation of energy-saving materials;
• grant-funded installation of heating equipment or security goods or connection of gas supply;
• renovation and alteration of dwellings;
• residential conversions;
• women’s sanitary products; and
• Children’s car seats.

Zero-rated supplies

VAT is not payable on zero-rated supplies, and an invoice for a zero-rated supply will not constitute a VAT invoice. However, zero-rated supplies are treated as taxable supplies in all other respects, including the right of the person making the supply to recover the VAT on their own business expenditure.

Exempt supplies

Some supplies are exempt from VAT, which means that no tax is payable – but, equally, the person making the supply cannot normally recover any of the VAT on their own expenses.

Registration for VAT

If the value of your taxable supplies is over a specified limit, you must register for VAT, unless your taxable supplies are wholly or mainly zero-rated in which case you may apply for exemption from registration.  If you are registered for VAT, you must charge and account for VAT on all your taxable supplies from the date that you are first registered. A person who makes taxable supplies below these limits is entitled to be registered in the UK on a voluntary basis if they wish, in order, for example, to recover VAT incurred in relation to these taxable supplies.

Who can be registered?

It is the person, not the business, who is registered for VAT and each registration covers all the business activities of the registered person. The person to be registered can be, for example:

• a sole proprietor;
• a partnership;
• a limited company;
• a club;
• an association; or
• a charity.

Late Registration Penalty

You may incur a penalty if you fail to notify us at the correct time that you should have registered for VAT. The amount of the penalty is a percentage of the net VAT due to Customs and Excise, from the date when you should have registered to the date when either we:

• received your application; or
• became fully aware of your need to be registered.

Civil action

In most cases where HMRC suspect dishonest evasion of VAT, they will investigate with a view to the imposition of a civil penalty. The maximum penalty in such cases is an amount equal to the VAT evaded.

Criminal proceedings

HMRC may also investigate any case of suspected dishonest evasion of VAT with a view to bringing criminal proceedings. Prosecution is more likely where one or more of the following circumstances apply:

• the evasion involves a registration of one or more businesses whose activities are solely, or primarily, bogus or undertaken as a systematic fraud against the tax;
• there is, during the course of investigation of a civil offence, a deliberate intent to deceive;
• the evasion is perpetrated by: lawyers, accountants or others who advise businesses about VAT matters; current or former tax officials; or a person who occupies a prominent position in the field of law or government;
• the evasion is executed together with other criminal activities – for example, excise evasion or where the case is being investigated criminally by the Inland Revenue;
• there has been a previous VAT or customs or excise offence which was concluded by the imposition of a penalty, the compounding of proceedings or a criminal conviction;
• where there is a conspiracy to evade VAT, other than by persons within the same legal entity; and
• where the evasion is perpetrated by an undischarged bankrupt.

For further information or advice please contact us on 0121 558 7691 or fill in our enquiry form and we will get back to you.