|
Page 2 of 10
VAT
1. How VAT Works
VAT is a transactions tax, on sales of goods and services.
It is not a tax on profits. VAT is charged on standard-rated supplies (and some others - see 2.2) made by VAT-registered businesses (see 3), which act as tax collectors for the Government.
1.1 All businesses pay VAT on most purchases.
- This is called 'input tax'.
1.2 Your business, if you are registered, charges VAT on the goods and services you sell.
- This is called 'output tax'.
1.3 The difference between the output tax you charge your customers and the input tax you claim is handed over to HM Revenue & Customs. CompanyProductSelling PriceClay Co. clay£1 + £0.17 VATPottery Co.vase£10 + £1.75 VATShop Co.vase£30 + £5.25 VATClay Co. £0.17 less £0.00 =£0.17Pottery Co.£1.75 less £0.17 =£1.58Shop Co.£5.25 less £1.75 =£3.50£5.25
Out of the Ordinary
The full lists of exempt and zero-rated supplies are long and complicated, with many exceptions and special cases, and there may be many situations where even your tax adviser will have to study the rules carefully.
Exempt supplies include:
- Insurance - also includes most services of intermediaries, such as brokers.
- Credit (eg interest on a loan).
- Certain sales and leases of property.
- Some education and training services.
Zero-rated supplies include:
- Books and newspapers.
- Young children's clothing.
- New house construction.
- Public transport (not including taxi hire).
- Most food (but not catering).
- Exports of goods to countries outside the EU, or to VAT-registered businesses in other EU member states.
There are also special rules covering:
- Retailers.
- Property.
- Import and export.
- Company cars.
- Secondhand goods.
- Buying a business.
- Bad debts.
- Free gifts.
Ask your tax adviser, or HM Revenue & Customs, how your business is affected by the VAT rules.
|
Business Advice