Becoming VAT Registered

Becoming VAT registered?

It is compulsory for your business to register for VAT if your taxable supplies, distance sales, or acquisitions are expected to exceed the VAT registration threshold in the next 30 days, or if you are already trading, and they have exceeded the threshold in the past 12 months. The current VAT registration threshold for 2009/10 is £68,000.(from May 1st 2009). A free online knowledge database is available to find out the most up-to-date details.

Note: "Taxable Supplies" are any goods and services that are subject to VAT at any rate, including zero rate

VAT errors and omissons

If you have made errors on a previous VAT return you can correct these on the next return you submit.  From 1 July 2008 the error limit has been increased from £2,000 to the greater of £10,000 or 1 per cent of turnover, subject to an upper limit of £50,000. The 1 per cent is based on box 6 of the VAT return in which the error was found

If the error is greater then you will need to inform your local VAT office immediately or contact your accountant.

What are the VAT rates?

NOTE: The standard rate of VAT was reduced from 17.5% to 15% by the chancellor Alistair Darling on 1st December 2008. The standard rate is set to change again on 1st Jan 2010.

Zero-rated supplies

Below are examples of taxable supplies where the VAT rate of 0% is applied.

• Most food, but not HOT food prepared in restaurants, take-aways, or any other food outlets. The only exception to this rule is if the food is heated but not with the intention to be consumed hot. Eg, Bread from a baker will often be sold hot or warm. Also pasties fall under this exemption.
• books;
• newspapers;
• young children's clothing and shoes;
• exported goods (For further information see Notice 703 Exports and removals of goods from the UK.);
• most prescriptions dispensed to a patient by a registered pharmacist;
• and most public transport services.

VAT is not charged (therefore it cannot be reclaimed) on goods and services that are:

• exempt from VAT
• outside the scope of VAT

Exempt items

There are some goods and services that are exempt from VAT. Exempt goods and services are not taxable for VAT. Items exempt from VAT include insurance, some services from doctors and dentists and some types of education and training. If you sell or otherwise supply exempt items, you cannot register for VAT and you cannot charge VAT. If you buy exempt items, you cannot reclaim any VAT. If you sell some exempt items and some VATable items, your business is 'partly exempt' and you will only be able to reclaim VAT related to the VATable items you sell.

There's an important difference between goods and services that are exempt from VAT and those that are zero-rated. If you sell or otherwise supply zero-rated items, you can claim the VAT back on your purchases.

Items outside the scope of VAT

Some goods and services aren't covered by the UK VAT system at all - they're outside the scope of VAT. You don't charge nor reclaim VAT on goods or services that are outside the scope of VAT including any items that you:

• sell or otherwise supply when you're not registered for VAT - and you don't need to be registered
• buy and sell outside the UK
• don't sell or otherwise supply as part of your business
• buy and sell for your own personal use such as a hobby

Other items outside the scope of VAT include:

• Donations to charity freely given by a business where the giver does not receive anything in return
• Statutory fees and services, eg MOT testing, congestion charge
• Tolls for bridges, tunnels and roads operated by public authorities
• Low cost welfare services provided by charities

Goods or services you supply within the European Union (EU) can be inside or outside the scope of UK VAT, depending on the particular transaction.