Skip to Navigation

VAT

For a wealth of advice and information on aspects of VAT, including essential tips for VAT planning, and how to survive the VAT inspector's visit, visit our VAT guides.

The standard rate of VAT is 20% and remains unchanged.

Making Tax Digital for VAT

The new regime for many VAT-registered businesses started on 1 April 2019.

Businesses that exceed the VAT-registration threshold (£85,000 in 2020/21) are required to keep digital records and file their returns using HMRC-approved software, which means filing using API technology.

Is my business affected by the rules?

VAT-registered businesses are required to check their last 12 months taxable supplies.

If the value exceeds £85,000 then the business is subject to MTD for VAT from the start of the next accounting period, that is, 1 April, 1 May or 1 June for businesses making quarterly VAT returns.

If the value of taxable supplies does not exceed £85,000 then the business must continue to check this value at the end of each month in order to identify when they become subject to MTD for VAT.

Clearly, some businesses will be far below the threshold and are never likely to exceed it so they can dispense with checks.

What are digital records?

Businesses need to keep basic information about the supplies they make and receive digitally. This does not mean transferring all of the VAT requirements into digital form.

The requirements are very brief. For supplies made, the digital record must show:

  • The time of supply (usually known as the taxpoint)
  • The value (before VAT) of the supply
  • The rate of VAT applicable to the supply.

For supplies received, a similar requirement is in place; the digital records must show:

  • The time of supply
  • The value of the supply, and
  • The amount of VAT to be recovered.

Businesses within the flat-rate scheme for VAT do not need to keep records of purchases, except for those capital items on which VAT is to be recovered. Retailers need only keep their daily takings amounts at the various rates of VAT.

Once the digital records are in existence, transfers of date (for example, between software programs or spreadsheets) will have to be by digital links, such as import/export or similar.

Once the basic transactions have been recorded, any amendments to these in order, for example to calculate the VAT recoverable by a partially exempt business, or to calculate output VAT on supplies made through a margin scheme can be done manually, provided a record is retained of the calculations.

The adjustments are either simply entered on a spreadsheet or adjusted on the accounting software package.

Filing the return should then be simple. If a software package is in use, which is approved for MTD filing, it is just a case of submitting the return, remembering to choose the option to submit under MTD when the software offers it.

For those using spreadsheets, it is necessary to obtain ‘bridging software' which will allow the return to be filed from the spreadsheet directly to HMRC.

Mandated businesses must not log on to their business tax account and file using the standard VAT100 form provided, although businesses which are below the £85,000 limit will still file their returns in this way if they prefer.

We advise on MTD on VAT, accounting software selection, or the benefit of spreadsheets, so do ask for help if you need it.

An introduction to VAT

Detailed guidance on the operation of VAT, VAT schemes and essential VAT information.

Value added tax

VAT rates, registration and deregistration limits.

Bad debt relief

Under the normal rules of VAT, a supplier has to account for output tax even if the supply has not been paid for. VAT cannot be reclaimed by issuing a credit note for the unpaid amount.

Issuing VAT invoices

Where a VAT registered person makes supplies of goods or services to another VAT registered person, subject to the standard or reduced rate.

Recovering VAT on staff expenses

Although the VAT rules normally prevent you reclaiming VAT on supplies that are not made direct to you, there are certain circumstances when the rules are relaxed.

Fuel scale charges

Fuel scale charges for VAT.

When to add VAT

This subject has been causing confusion ever since VAT was introduced in the UK. There are a number of issues to consider.

Deregistering from VAT

Deregistration from VAT is usually a fairly straightforward process. However, there are some important aspects to bear in mind which, if misunderstood, could prove costly.

Cash accounting scheme

Cash accounting enables you to account for VAT on the basis of payments received and made instead of on tax invoices issued and received.

Flat rate scheme

This scheme is designed to reduce the cost of complying with VAT obligations by simplifying the way small businesses calculate their VAT.

Annual accounting scheme

Under annual accounting, you make agreed payments on account and need complete only one VAT return per year. The purpose of the scheme is to aid cashflow and budgeting.

VAT dos and don'ts

If you need to check you are being given a valid VAT number you can call HMRC's national advice service on 0300 200 3700 from 8am to 6pm Monday to Friday.

VAT inspections

One of life's certainties is that if you are a VAT registered business, sooner or later you will have a check by an HMRC officer, either at your business premises or remotely.

How to survive the enforcement powers

The complicated penalty system for VAT errors has been simplified, but it is not all good news.

Group VAT registration

VAT grouping occurs where two or more corporate bodies, usually companies or limited liability partnerships are treated as a single taxable 'person' for VAT purposes. A VAT group is treated in the same way as a single company registered for VAT on its own.

VAT Mini One Stop Shop (MOSS)

MOSS provisions relate to the VAT place of supply of services rules. These are the supplies of e-services, broadcasting and telecommunications (BTE).

Reverse charge VAT for construction services