Registration for VAT
The thresholds for VAT registration are significantly higher to those applying in Ireland. There is a single rate for goods and services.
The obligation to register for VAT arises if taxable goods and services of more than £85,000 have been supplied in the last 12 month period or if it is anticipated that taxable goods and services valued at more than £85,000 will arise in the next 30 day period alone.
Non-vatable goods and services are not part of the £85,000 as they are not taxable supplies. The £85,000 figure applies to vatable goods. Certain supplies are exempt from VAT. For example, many financial services, educational services, insurance are VAT exempt.
A person may register voluntarily for VAT if he is making or intends to make taxable supplies below the above limits. This will enable the reclaim of VAT on purchases. If the business is supplying to VAT registered businesses, the charging of VAT may ultimately be immaterial, if the VAT can be reclaimed.
Upon registration HMRC give the trader a VAT registration certificate. It confirms the trader’s VAT number, his returns and payment obligations details. It shows the effective date of registration.
A person must deregister when he ceases to make taxable supplies. HMRC must be notified within 30 days. A person may voluntarily deregister if the business continues if there is evidence that taxable supplies within the next 12 months will not exceed the threshold (strictley £83,000 (2018). On deregistration VAT must be accounted for on the value of fixed assets or stocks held at the date of deregistration on which input tax has been claimed.
It is usual to register and make VAT returns online. A manual VAT 1 form can also be used. In most cases online filing is mandatory. Payments may be via direct debit or other funds transfer..
The VAT return itself is a simple form detailing gross purchases, inputs etc. However, the underlying records must be kept to justify it. The standard rate (now 15%) applies to nearly all goods. The reduced rate of 5% applies to a small number of goods such as domestic fuel, energy saving installations for dwellings. The zero rate apply amongst other things to some foods, books, children’s clothing.
The application to register for VAT may take a period of time and HMRC will back date the commencement date to the relevant point and time when the threshold is crossed. Once the thresholds are exceeded the onus is on the business to charge VAT, so that it has it to hand once the return must be made.
VAT Administration
All registered traders have to complete a VAT return in every period and pay over VAT due to HMRC or reclaim VAT payable.
Where a trader has a VAT liability exceeding £2 million per annum monthly payments on accounts are required. Payments to the end of months two and three are 1/24th of the annual liability of the previous year. Additional amounts are paid with the normal VAT returns.
VAT must be paid to the United Kingdom Revenue known as HM Revenue & Customs (HMRC). VAT is usually payable quarterly. A VAT return must be made and the VAT paid by the 30th day after the third month. Therefore VAT for January, February and March will be due by 30th April.
There are three rates of VAT in the UK. The standard and maximum rate is 15%, (recently reduced from 20%) a reduced rate of 5% and 0% rate. 0% rate has the advantage of allowing the zero rated trader to reclaim VAT and charge 0% VAT.
VAT records must be kept complete and up to date. HMRC is entitled to inspect them and the figures used to fill in the VAT return. VAT invoice must be set out correctly and show the rate and amount of VAT together with the VAT number.
VAT Invoices
A VAT invoice must be issued when a standard rate supply is made to a VAT registered business. A VAT invoice must be issued within 30 days of the date of the taxable supply. The original VAT invoice is to be sent to the customer and forms part of their evidence in reclaiming input VAT. A copy must be retained by the supplier to support the cancellation of output VAT.
The VAT invoice must contain details of supplier’s name and address, VAT registration number, tax point i.e. the date, customer’s name and address, description of goods, rate of VAT, amount of VAT, total amount before and after VAT.
Retailers selling goods and services to the general public or providing services are subject to less detailed requirements. They need only produce a VAT invoice if a customer requests it. The invoice can be less detailed than normal if the consideration for the supply is less than £250. The less detailed invoice must show the retailer’s name, address and VAT number, date of supply, description of goods, price and the rate of VAT.
A VAT invoice must contain the following:-
- a unique and sequential identifying number
- date and time of supply (date goods are sold or delivered or service supplied whichever is earlier)
- name and address of the business
- customer’s name and address
- VAT number
- sufficient description to identify the service or goods
- quantity with the unit price
- rate of VAT
- amount of VAT
- rate of any cash discount.
There are separate invoice details obligations in respect of EU supplies.
Invoices may be issued electronically. There is a procedure by which an agreement can be entered with persons to whom goods or services are supplied by which they raise the VAT invoice. This is self billing.
Accounts and Records
There are obligations in relation to record keeping, administration and cash flow that arise with VAT registration. A VAT registered business must issue and keep copies of VAT invoices. The information contained is similar to that contained in Irish VAT invoices. VAT invoices must be kept for all purchases in order to reclaim VAT. A record must be kept of all VAT purchases.
An account must be kept of all VAT charged on sales and VAT incurred on purchases. It is generally possible to integrate VAT accounts with the general accounts of the business. It is desirable to keep VAT in a separate account. VAT collected is effectively held on trust for HMRC, although this is not technically the position.
Businesses must keep records of all goods and services received and supplied in the course of business. They must be sufficient to allow the VAT return to be completed and allow HMRC to check the returns.
Records must be kept up to date and preserved for 6 years. Copies of all VAT invoices, records of outputs i.e. sales books, evidence supporting claims for recovery, records of inputs i.e. purchases and VAT accounts must be kept.
Default & Errors
If errors are found in a VAT return, they must be dealt with immediately. If the combined errors are less than £2,000 it may be possible to adjust the VAT account and include the value of the adjustment in the next return.
A default surcharge arises if a VAT return is not submitted in time or is late. There is a surcharge penalty depending on the number of defaults.
VAT is a self assessment tax. HMRC can make control visits to the trader’s premises in order to check compliance. They have power to enter businesses, inspect documents including profit and loss accounts and balance sheets, take samples and inspect computer records.
There are penalties for serious mis-declarations. A mis-declaration is one over 30% of the gross amount of VAT or £1 million. The penalty is 15% of the VAT that would have been lost if the mis-declaration had not been discovered.
The penalty regime is graduated in much the same way as the income tax penalty regime. The extent of penalty depends on whether reasonable care, carelessness, deliberate or deliberate and concealed behaviour is involved.
Where a reasonable care has been taken, the penalty is generally zero. In the case of carelessness the range of penalty is 0 to 30%. In the case of deliberate action, the penalty range is 20% to 70%. In the case of deliberate and concealed action the penalty range is 30% to 100%. Each is based on the quantum of the original tax properly due.In the case of prompted disclosures, the penalty rates are half the above maxima.
Default Interest is charged if HMRC raise an assessment or an error is voluntarily disclosed and the net value of the error exceeds £2,000. The current rate (2018) is 2.75%; it is linked to the base rate.
Surcharges may be imposed where the VAT return is not made on time or the correct VAT has not been paid.
The default surcharge ranges some 2% to 15% depending on the traders default history The surcharge may be waived where the amount is below £400.
HMRC pay interest at .5% where the trader suffers an overpayment due to their error
T here is a right to appeal in respect of the imposition of a penalty its amount or a decision not to suspend it. See the section in respect of income tax appeals
