When Value Added Tax was introduced in the UK in 1973 it was promised that it would be "a simple tax". However, it has become increasingly complex over the years.

VAT is a tax on goods and services provided in the course of business in the UK. Imports from outside the EU are also subject to UK VAT.

Some supplies are specifically exempted from VAT e.g. land, insurance, postal services, betting, finance, education, health and welfare, burial, sport and works of art.

Some supplies are zero-rated including food, books, construction of new residential buildings, international transport, drugs and children's clothing.

Most items are taxable at standard rate which is currently 17.5%.

Sometimes the line drawn between exempt, zero-rated and standard-rated supplies can be very fine and some research will be necessary in difficult cases.

REGISTRATION
Any business in the UK with a taxable turnover of more than £55,000 p.a. must register with HM Customs & Excise for Value Added Tax.

Once registered, the business must charge VAT to its customers at the rates applying at the time.

The business will then receive a Value Added Tax Return (usually every three months). The business must complete and return the form within one month following the end of the VAT period. At the same time it must pay over any tax due to HM Customs & Excise.

Effectively, the amount payable is the amount of VAT charged to customers, less the amount of VAT charged by suppliers.

INVOICES
Once registered, the business must issue VAT invoices to its customers whenever requested. There are specific requirements for the information contained in the invoices which include the VAT registration number (not the same as the number received from Companies House) and the amount and rate of any VAT charged.

There are also requirements for the keeping of accounting records.

Majors, Chartered Accountants, can assist in the setting up of company systems and accounting records to satisfy the requirements.

© Majors, Chartered Accountants, 2002;  Updated 25 April 2002