Home > VAT > Tax on the Sale

Tax on the Sale

By: J.A.J Aaronson - Updated: 22 Mar 2012 | comments*Discuss
 
Vat Register For Vat Vat Registration

The British VAT system is amongst the most complicated in the world. The tax schedule that must be understood by every business owner is quite oblique, with different products attracting different rates – and many attracting no tax at all. Currently, the standard rate of VAT is 20%.

There are two important elements of the VAT schedule with which all business owners must be familiar. These are the rules regarding compulsory registration, and the rules regarding which products attract which rates.

Compulsory Registration

Many businesses are forced to register for VAT. From 1st April 2012 if your turnover in the previous 12 months exceeds £77,000, you must register for VAT. This is a legal requirement. Similarly, if you take over a business and your combined turnovers exceed this figure, you must also register. If your turnover drops below £75,000, you can actually de-register from VAT.

Finally, registration and de-registration threshold for relevant acquisitions for goods from other EU Member States is £77,000.

It is also possible to voluntarily register for VAT. You may wish to read our article Should I Register My Business For VAT? more information.

Rates of VAT

Once registered, you must understand which products and services are liable for VAT, and at what rate. Products and services will fall into one of three categories:

  • Standard rate – 20%
  • Reduced rate – 5%
  • Zero rate – 0%
Some products and services will also be exempt from tax.

It would be impossible to provide a comprehensive guide to the products and services that fall into each category. Most items will attract VAT at the standard rate, but there are significant and manifold exceptions to this. For example, most food and drink is zero-rated – but items like confectionary, alcoholic drinks and ice cream are all standard rated.

As a business owner, it is your responsibility to find out the correct rate for each of your products and services. There is further guidance available on the HM Revenue & Customs (HMRC) website, including a very lengthy list of exempt items.

Reduced Rate Items

As well as understanding how much VAT you must charge, you should also note the VAT that you are paying. This will have an important impact on your outgoings when you come to the end of each VAT period.

While most supplies purchased by businesses will attract VAT at the standard rate, some important items fall into the reduced rate category and therefore attract VAT at 5%. Most fuel and energy saving items are charged at the reduced rate, along with heating units and some construction services. Utilities like sewerage and water to households are zero-rated – but water supplied to a customer for use in connection with an industrial activity is always standard-rated. An ‘industrial activity’ is any activity described in any of Divisions 1 to 5 of the 1980 edition of the Standard Industrial Classification. In brief, those Divisions are:

  • 1. Energy and water supply industries.
  • 2. Extraction of minerals and ores other than fuels; manufacture of metal, mineral products and chemicals.
  • 3. Metal goods, engineering and vehicle industries.
  • 4. Other manufacturing industries.
  • 5. Construction.

It is important that you factor in variations in rates if you are considering voluntary VAT registration, in order to ensure that you do not create unnecessary expense.

The VAT schedule is exceptionally complex. If you are confused, and particularly if you are considering VAT registration for the first time, you should seek personal advice from an accountant.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Latest Comments
  • Kenthen
    Re: What Does Road Tax Pay For?
    I often wondered if it's legal for the council to close public roads for pedestrian usage unless it's for repair or some other road…
    11 August 2019
  • Oky
    Re: How Will My Second Job Be Taxed?
    Hi if I work for 2 agency. One job is 40 hour per week and other is 12 or 20 hours per week, only for one week it will be.…
    7 August 2019
  • Jo-jo
    Re: How Will My Second Job Be Taxed?
    I have main job at 24 hours a week and earn £198 a week if I take on a 2nd job at 10 hours a week at £9.04 an hour how much…
    3 August 2019
  • Jules
    Re: Should I be Paid Mileage Allowance?
    Im a carework i dont get paid any mileage i only get 25p per visit but my calls are 5 & 6 miles apart how do i claim some…
    24 July 2019
  • San
    Re: What is My Tax Code?
    Hello I have a first job and I am earning 290 a week and have been charged 60 for that first wage and I have started a second job for weekend…
    18 July 2019
  • MH829567
    Re: What Does Road Tax Pay For?
    Road Tax doesn't pay for anything cos it don't exist. Vehicle Excise Duty or CAR tax pays for the environmental effects of the…
    9 July 2019
  • Sandra
    Re: Payment of Pensions
    I want my pension to be paid weekly not monthly can this be changed ?
    5 July 2019
  • Sandra
    Re: Payment of Pensions
    I want my pension to change from monthly to weekly can thus happen?
    5 July 2019
  • vic
    Re: How Will My Second Job Be Taxed?
    my son is at uni and works on a sat for 8 hrs, he has just started a full time summer job until uni goes back and has been…
    4 July 2019
  • Jane
    Re: How Will My Second Job Be Taxed?
    Hi, I've recently been offered 2 part time positions (very similar roles) and am wondering if I could accept both offers? In…
    4 July 2019