What Are The Rates of VAT On Taxable Supplies?
Zero Rated - 0%
Standard Rated - 20%
Reduced Rate- 5%
These are still taxable supplies with VAT charged at a rate of 0%.
The most common items covered by this rates include:
- Clothing and footwear for children;
- Safety helmets;
- Prescription medication;
- Aids for the disabled;
- Construction of residential buildings;
- Fresh fruit & vegetables;
- Milk, butter,eggs & cheese;
- Meat and poultry;
- Chilled or frozen ready meals;
- Canned food;
- Frozen food (except ice cream)
- Bread products;
- Cereal;
- Biscuits (as long as they are not covered in chocolate)
- Cakes;
- Newspapers, books, brochures and leaflets;
- Public transport fares
- Women's sanitary products.
Reduced Rate- 5%
Standard Rated - 20%
Reduced Rate- 5%
These are taxable supplies with VAT charged at the reduced rate of 5%.
The most common items covered by this rate include:
- Aids for the disabled
- Domestic supply of gas and electric
Standard Rated - 20%
Standard Rated - 20%
Standard Rated - 20%
These are taxable supplies with VAT charged at a standard rate of 20%.
These are most supplies which are not covered by the zero or reduced rates and are not exempt or out of scope supplies.
What Are Non Taxable Supplies?
VAT Exempt
Out of Scope
Out of Scope
These are supplies which you cannot charge VAT on, even at a rate of 0%.
The most common items covered by this rates include:
- Burial or cremation (human)
- Commercial land & buildings (selling/leasing/letting)
- Cultural events operated by public bodies (museums, art exhibitions, zoos & performances)
- Education, vocational training
- Financial services (money transactions, loans/credits, savings/deposits, shares/bonds)
- Insurance
- Gambling (betting, gaming, bingo, lottery)
- Health services (doctors, dentists, opticians, pharmacists & other health professionals)
- Medical treatment & care
- Membership subscriptions
- Postage stamps
- Sports activities & physical education
- Television license
If a business is supplying goods and services which are both taxable and VAT exempt, they are known as partially exempt. In this case, shared costs which cannot be traced to a particular supply such as overheads can be apportioned based on taxable turnover as a percentage of taxable turnover plus exempt turnover. This percentage can then be used to determine how much relief can be obtained of the input VAT relating to the shared costs.
Out of Scope
Out of Scope
Out of Scope
These are supplies which you cannot charge VAT on or reclaim VAT on.
The most common items covered by this rates include:
- Goods & services sold outside the UK
- Goods & services supplied by unregistered supplier
- Statutory fees & services (MOT testing, congestion charge etc)
- Tolls for bridges, tunnels and roads (operated by public authorities)
- Voluntary donations to charity
What Are The Implications of VAT Registration?
Charge VAT At The Correct Rate
Charge VAT At The Correct Rate
Charge VAT At The Correct Rate
You must ensure that VAT is charged on goods and services at the applicable rate.
The net amount is excludig VAT and the gross amount incudes VAT and can be arrived at as follows:
- Zero rated supplies - multiply net number by 1;
- Reduced rated supplies - multiply net number by 1.05;
- Standard rated suppies - multiply net number by 1.20.
A business, once registered, can either add VAT to prices or keep the prices the same and absorb the VAT cost. The latter would mean taking the sales of reduced and standard rated supplies for a VAT period and dividing them by 1.05 and 1.20 respectively to arrive at the net value of the supplies. The difference between the actual sale value for both reduced and standard rated supplies and the net value will be the output VAT due to HMRC.
Issue VAT Invoices
Charge VAT At The Correct Rate
Charge VAT At The Correct Rate
A Full VAT Invoice is required to contain the following information:
- The supplier’s business name, address and contact information
- The customer’s name and address
- A unique sequential invoice number
- The supplier’s VAT registration number
- The tax point date (also known as the date of supply) that the goods/services were provided
- The date of the invoice (this may be the same at the tax point date)
- A clear description of what is being invoiced, (including quantity and cost of each item if applicable)
- The net amount (total amount excluding VAT) being charged per item;
- The rate of VAT charged per item;
- The total amount charged excluding VAT;
- The total amount of VAT charged.
Full invoices can be issued for any amount, however there are alternative formats which can be used depending on the net sales value of the invoice (invoice value exlcuding VAT).
However, a simplified VAT invoice for sales under the value of £250 (including VAT) can be issued. As the name suggests, this document contains far fewer details. The following information is required:
- The suppliers details (name, address, contact information, etc.);
- The suppliers VAT registration number;
- A unique invoice number for identification;
- A description of the goods and services provided;
- The date of supply for the goods and services;
- Gross amount (total amount including VAT);
- A clear indication of items which are exempt ot zero rated (some supplier use an asterix against these on invoices)
A modified invoice is another type of VAT invoice - it is the same as a full invoice except it includes the total amount including VAT per line item. Modified invoices should be used when raising invoices for more than £250 exlcuding VAT.
A VAT invoice does not need to be issued if:
- You are not VAT registered;
- The sale of goods or services is exempt from VAT;
- Your customer is not VAT registered;
- You have gifted the service or goods being received;
- You have a self-billing agreement in place with your customer.
Maintain VAT Records
Charge VAT At The Correct Rate
Maintain VAT Records
There are 2 records that are specifically required for VAT. These are:
- The VAT account - this records the VAT incurred on purchases during the period and VAT charged on sales. It should support the figures which have been included within your VAT return;
- A VAT invoice for supplies to other VAT-registered businesses - a ‘VAT invoice’ is just the term for an invoice which contains some information required by the VAT rules, most commercial invoices will already hold the right information.
In addition to the above records, you are also required to keep business records documenting the transactions underrtaken by the business such as:
- Sales invoices;
- Purchase invoices;
- Cash book or bank statements;
- A profit and loss and balance sheet;
- Till rolls to evidence sales;
- Import and export dcumentation
Records mus tbe maintianed for 6 years from the filing of the VAT return.
File VAT Returns
Pay VAT Due To HMRC
Maintain VAT Records
VAT returns are generally filed every quarter (HMRC will notify the business upon registration of the date of its first VAT return). They are filed one month and 7 days after the end of the relevant VAT period.
VAT retruns must be filed in accordance with the Making Tax Digital (MTD) initative being rolled out by HMRC - this essentually required VAT registered businesses to submit VAT retruns using MTD compatiboe software which is able to generate and submit a VAT return automatically based on digital information that has been input into the software for the relevant tax period. The MTD system is replacing the online HMRC filing system which has been used in the past and is continuing to be used for other taxes.
Spire Accountants use fully MTD compliant software which our clients can use to meet their MTD obligations and which we can then use to submit a final VAT return to HMRC. Contact us on 07442202165 for more information or email us at Shakeela@spireaccountants.net.
Pay VAT Due To HMRC
Pay VAT Due To HMRC
Pay VAT Due To HMRC
The payment date for VAT for a VAT period is the same as the retrun filing date. The payment must be recieved by HMRC by this date.
To ensure prompt payment, the following methods will generally ensure the payments reaches HMRC the same day or the next day:
- online or telephone banking (Faster Payments)
- through your online bank account
- CHAPS
All other forms of payment such as BACS and cheque will take up to 3 working days to clear.
HMRC will charge surcharges for late payment.
What Are The Penalties For Non Compliance?
Penalties For Not Registering For VAT
Penalties For Not Maintaining VAT Records
Penalties For Not Maintaining VAT Records
Where notification is late a failure to notify penalty will be charged unless there is a reasonable excuse for the delay. The penalty is a percentage of the VAT unpaid. It will be:
- 5% if you registered no more than nine months late
- 10% if you registered between nine and 18 months late
- 15% if you registered more than 18 months late.
Penalties For Not Maintaining VAT Records
Penalties For Not Maintaining VAT Records
Penalties For Not Maintaining VAT Records
The period for retaining records is six years. There can be a fixed penalty of £500 for breaching this requirement or £250 for businesses in the first year of trading.
A penalty of £3,000 can apply if records have been deliberately destroyed, which can be reduced to £1,500 if only some records are destroyed.
Penalties For Late Filing & Payment
Penalties For Late Filing & Payment
Penalties For Late Filing & Payment
A default occurs if HMRC has not received a return or all of the VAT due on a return by the due date.
Each default, whether it is late submission of the return or late payment, extends the surcharge liability period, but only late payment incurs a surcharge.
You receive a warning after the first default - the Surcharge Liability Notice (SLN) but not surcharge.
Any subsequent defaults will incur a surcharge based on a a percentage of the VAT owed for that VAT period - these percentages are different based on whether the VAT registered business is less than £150,000 or if it is equal to or more than £150,000. The default percentages are shown in the image above.
You only return to the beginning of the surcharge cycle when you have submitted and paid a whole year's worth of VAT returns on time since the previous default.
Penalties For Inaccurate Returns
Penalties For Late Filing & Payment
Penalties For Late Filing & Payment
Cumulative net VAT errors of £10,000 or less discovered during a VAT period may be included in the VAT return for the next VAT period, as may net errors between £10,000 and £50,000, which do not exceed 1% of the Box 6 (total value of sales and other outputs) figure for the same VAT period. Net errors exceeding those limits must be notified separately by completing form VAT 652 or by writing to HMRC. Deliberate VAT understatements must always be notified on form 652.
HMRC can impose different penalties for errors above £10,000 in value, depending on the nature or seriousness of the error:
- Penalties for careless errors range from 0-30 percent of the value of the error.
- Penalties for deliberate errors can be up to 70 percent of the value of the error
- Penalties for errors that are deliberate and concealed can be up to 100 percent of the value of the error.
Prompted errors (where HMRC has made you aware of an error) attract higher penalties than unprompted errors, so it’s essential to notify HMRC if you spot an error.
If you have adjusted a careless error or inaccuracy on your return that is within the thresholds, you may still write to HMRC asking them to consider any reduction to a penalty. As the majority of errors will not be careless or deliberate, no penalty will be due.