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The complexities of VAT legislation

On April 1st  VAT reached its 40th birthday.  But its launch forty years ago was no April Fool. Introduced as a  requirement to join the European Economic Community, VAT in its first year levied at just 10 per cent and raised  £1.5billion for the public purse.

40 years later, the standard rate has doubled to 20 per cent and is now worth £100 billion a year in the UK.

Susan Hutter of accountants Shelley Stock Hutter gives some useful pointers on the complexities of VAT legislation:

  • The annual registration limit for VAT from 1 April is turnover of £79,000 per annum.
  • As soon as your turnover exceeds the £79,000, you have 30 days to register for VAT. But be warned: there are fines for late registration and also interest on late payment of VAT.
  • The “cash accounting” scheme can be applied to businesses with a turnover of up to £1,350,000 per annum. Under the cash accounting scheme you will only have to pay over VAT on monies received from customers. This is obviously excellent for cash-flow purposes as you will not be required to pay over output VAT that you have not received. The corollary is that you can only claim input VAT on goods and services that you have actually paid for.

Accounting For VAT

Most businesses will account for VAT on a quarterly basis. Nearly all businesses now have to file VAT Returns online. If you do this you have one month and 7 days from the quarter end date to file the return. If you pay on line this is the due date for payment as well. If you pay by Direct Debit you have a further 4 days to make the payment.

If you are in the situation where you regularly have VAT refunds, for example if all your sales are exports, then you may wish to prepare monthly VAT Returns for cashflow purposes.

Exports

It is very important to differentiate between exports to EU countries and to the rest of the world as the rules are quite different.

EU

As long as your customer supplies you with a legitimate VAT number you need not charge VAT to your EU customers. As soon as you advise HMRC that you have supplied goods to the EU, you will be sent a EU Sales List (ESL) on which you have to return details of the sales made to your EU customers. The ESL must be submitted to HMRC within 14 days of the end of the calendar quarter to which it relates if a paper return is submitted. An extra 7 days is given if the return is filed on line.

Other Exports

Providing that you have proper evidence of exportation, you do not have to charge VAT on your exports.

Imports & Acquisitions

Imports relate to goods purchased from non EU countries. Usually the UK business can reclaim input VAT charged by the overseas supplier. Acquisitions relate to goods purchased from EU countries and usually these are supplied without VAT

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