VAT Overview

Tax Penalties for Self Assessment Tax Returns

VAT is a tax that’s charged on most goods and services that VAT-registered businesses provide in the UK. It’s also charged on goods and some services that are imported from countries outside the European Union (EU), and brought into the UK from other EU countries.

VAT is charged when a VAT-registered business sells to either another business or to a non-business customer.

When VAT-registered businesses buy goods or services they can generally reclaim the VAT they’ve paid.

There are three rates of VAT, depending on the goods or services the business provides. The rates are:

  •       standard – 20 per cent
  •       reduced – 5 per cent
  •       zero – 0 per cent

There are also some goods and services that are:

  •       exempt from VAT
  •       outside the UK VAT system altogether

When to Register

  • your turnover for the previous 12 months has gone over a specific limit – called the ‘VAT threshold’ (currently £79,000)
  • you think your turnover will soon go over this limit

Or you can voluntarily register as VAT with no turnover cap.

What VAT is charged ON?

Detail guidance on the VATable and non VATable products can be found at;

VAT Accounting:

If you’re VAT-registered you’ll have to submit a VAT Return at regular intervals – usually, quarterly – the return shows:

  • the VAT you’ve charged on your sales to your customers in the period – known as output tax
  • the VAT you’ve paid on your purchases – known as input tax

If the amount of output tax is more than the input tax, then you send the difference to HM Revenue & Customs (HMRC) with your return.

If the input tax is more than your output tax, you claim the difference back from HMRC.


Using standard VAT accounting, the VAT you pay to HM Revenue & Customs (HMRC) or claim back from them is the difference between the VAT you charge your customers and the VAT you pay on your purchases.

Using the Flat Rate Scheme you pay VAT as a fixed percentage of your VAT inclusive turnover. The actual percentage you use depends on your type of business.

Who Can Join Flat rate scheme:

You can join the Flat Rate Scheme for VAT and so pay VAT as a flat rate percentage of your turnover if:

Your estimated VAT taxable turnover – excluding VAT – in the next year will be £150,000 or less. Your VAT taxable turnover is the total of everything that you sell during the year that is liable for VAT.

Generally, you don’t reclaim any of the VAT that you pay on purchases, although you may be able to claim back the VAT on capital assets worth more than £2,000 (Contact us for further details)

Once you join the scheme you can stay in it until your total business income is more than £230,000.

Discount in your first year of VAT registration

There’s a one percent reduction in the flat rate percentages for your first year of VAT registration. So if you are in your first year of VAT registration, you can reduce the flat rate percentage for your sector by one, until the day before the first anniversary of your VAT registration.


Flat Rate Scheme percentage rates from 4 January 2011

These rates will apply from 4 January 2011 until further notice.

Category of business Appropriate percentage
Accountancy or book-keeping 14.5
Advertising 11
Agricultural services 11
Any other activity not listed elsewhere 12
Architect, civil and structural engineer or surveyor 14.5
Boarding or care of animals 12
Business services that are not listed elsewhere 12
Catering services including restaurants and takeaways 12.5
Computer and IT consultancy or data processing 14.5
Computer repair services 10.5
Dealing in waste or scrap 10.5
Entertainment or journalism 12.5
Estate agency or property management services 12
Farming or agriculture that is not listed elsewhere 6.5
Film, radio, television or video production 13
Financial services 13.5
Forestry or fishing 10.5
General building or construction services* 9.5
Hairdressing or other beauty treatment services 13
Hiring or renting goods 9.5
Hotel or accommodation 10.5
Investigation or security 12
Labour-only building or construction services* 14.5
Laundry or dry-cleaning services 12
Lawyer or legal services 14.5
Library, archive, museum or other cultural activity 9.5
Management consultancy 14
Manufacturing fabricated metal products 10.5
Manufacturing food 9
Manufacturing that is not listed elsewhere 9.5
Manufacturing yarn, textiles or clothing 9
Membership organisation 8
Mining or quarrying 10
Packaging 9
Photography 11
Post offices 5
Printing 8.5
Publishing 11
Pubs 6.5
Real estate activity not listed elsewhere 14
Repairing personal or household goods 10
Repairing vehicles 8.5
Retailing food, confectionary, tobacco, newspapers or children’s clothing 4
Retailing pharmaceuticals, medical goods, cosmetics or toiletries 8
Retailing that is not listed elsewhere 7.5
Retailing vehicles or fuel 6.5
Secretarial services 13
Social work 11
Sport or recreation 8.5
Transport or storage, including couriers, freight, removals and taxis 10
Travel agency 10.5
Veterinary medicine 11
Wholesaling agricultural products 8
Wholesaling food 7.5
Wholesaling that is not listed elsewhere 8.5

Although you only have to pay HMRC a percentage of your turnover, you must still show VAT at the appropriate normal rate (standard, reduced or zero) on the invoices you issue.

What a VAT invoice must show

A VAT invoice must show:

  • an invoice number which is unique and follows on from the number of the previous invoice – if you spoil or cancel a serially numbered invoice, you must keep it to show to a VAT officer at your next VAT inspection
  • the seller’s name or trading name, and address
  • the seller’s VAT registration number
  • the invoice date
  • the time of supply (also known as tax point) if this is different from the invoice date – see below
  • the customer’s name or trading name, and address
  • a description sufficient to identify the goods or services supplied to the customer
  • the rate of any cash discount
  • the total amount of VAT charged expressed in sterling

BNW Team can help you in registering your business for VAT, preparing and filing your VAT returns quarterly. If you have any question or need our help please Contact Us

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