Invest NI No Nonsense Guide 11 (PDF) - Invest Northern Ireland

If your business supplies goods or services exceeding £77,000 each year, you must register for valueadded tax (VAT). You will have to charge VAT on your sales and pay it on most purchases. But don’t bedaunted — a lot of the paperwork is the kind of thing a well-run business should be doing in any caseWhat VAT will meanfor you24What is VAT?Value added tax (VAT) is a taxon sales of goods and services.It is not a tax on profits.Businesses must registerfor VAT if they exceed theregistration thresholdRegistration for VAT is compulsoryfor most businesses that supplygoods and services amountingto more than £77,000 (2012-13tax year) in any 12-month period.You must register within 30 daysof reaching the threshold, orif you expect your turnover toexceed the threshold in the next30 days alone.Businesses collect VAT onthe Government’s behalf. Allbusinesses pay VAT on mostpurchases. This is called inputtax. Registered businessescharge VAT on the goodsand services they sell. Thisis output tax.If a VAT-registered businessreceives more output tax fromsales than it pays in input taxon purchases, it must pay thedifference to HM Revenue &Customs at fixed intervals (seeNext steps below).If more input tax has beenpaid than output tax charged,HM Revenue & Customs willrefund the difference to yourbusiness.Businesses with a turnoverbelow the £77,000 threshold canregister voluntarily. Sometimesthere can be a business advantagein doing this. For example,registering can allow you toreclaim the VAT you pay on yourstart-up costs.Next steps● See Keeping VAT records,opposite● Visit www.nibusinessinfo.co.uk/vat● You can register with HMRevenue & Customs for VATonline or by using form VAT 1.Contact: 0845 010 9000;www.hmrc.gov.uk/vat● Further information about VATis available from HM Revenue& Customs. Contact 0845 0109000; www.hmrc.gov.uk/vat● For further information onregistering voluntarily contactHM Revenue & Customs on0845 010 9000 — or seekadvice from your accountantWhat VAT rate will Ihave to charge?The rate of VAT that you mustcharge varies according to thetype of product or service youofferGoods and services (supplies) aredivided into four categories forVAT purposes. They can be:● taxed at a standard rate (20per cent, increased from 17.5per cent from 4 January 2011);● taxed at a reduced rate (fiveper cent);● taxed at a zero rate;● exempt from VAT.All goods and services thatare not exempt are referred toby HM Revenue & Customs as‘taxable supplies’.VAT-registered businesses mustadd the standard rate of VAT tothe value of most products andservices when they are sold.The reduced rate must becharged on some products andservices, including: domesticfuel or power; various kinds ofalterations and improvementsto premises; women's sanitaryproducts; smoking cessationproducts; children's car seats.There are also specific ruleson products and services thatare zero-rated. In these areas,VAT is applied at zero per cent.Businesses that offer zero-ratedproducts or services can stillreclaim the input tax they havepaid on purchases. Zero-ratedproducts include: most food (butnot meals in restaurants or cafésand hot food and drink); books;newspapers; young children’sclothing and shoes; exportedgoods; most public transportservices.Exempt products and servicesinclude: insurance; providingcredit; certain types of educationand training; certain servicesfrom doctors and dentists;selling, leasing or letting landand buildings (but not garages,parking spaces or hotel andholiday accommodation).Any business which offerssome goods or services that aresubject to VAT and some thatare not has ‘partial exemption’.This means it can generally onlyreclaim input tax on purchasesused for making non-exemptproducts or services.The No-Nonsense Guide