01

Introduction to VAT

VAT is a consumption tax levied on most goods and services sold in the UK. While businesses collect VAT on behalf of the government, the end consumer ultimately bears the cost. For businesses, understanding VAT is crucial for compliance, accurate pricing, and maintaining healthy cash flow.

VAT (Value Added Tax) is a key part of doing business in the UK, but it can be complex, time-consuming, and costly if not managed correctly. At CAPS, we offer expert VAT services that ensure you stay compliant with HMRC while maximising your business efficiency.

VAT is a tax charged on most goods and services sold by VAT-registered businesses in the UK. It also applies to imports from outside the UK. Businesses must register for VAT when their taxable turnover exceeds the current threshold (currently £90,000 as of April 2024), or they expect it to do so in the next 30 days.

02

VAT Registration

When to Register

• Mandatory Threshold: Register if your taxable turnover exceeds £90,000 in any rolling 12-month period.
• Forward-Looking Test: Register if you expect turnover to exceed the threshold in the next 30 days.
• Voluntary Registration: Even below the threshold, businesses can register to reclaim input VAT and enhance their professional image.

How to Register

• Register online via HMRC's Government Gateway.
• You'll need details such as your business structure, UTR, company number, estimated turnover, and bank account.
• Effective date of registration is typically when your turnover exceeded the threshold.

Failure to register on time can lead to penalties and backdated VAT bills.

03

VAT Rates and Exemptions

• Standard Rate (20%): Applied to most goods and services.
• Reduced Rate (5%): Applies to domestic fuel, children’s car seats, and some renovation works.
• Zero Rate (0%): Includes food, books, and children’s clothes. Input VAT can still be reclaimed.
• Exempt Supplies: Education, insurance, and financial services. Input VAT cannot be reclaimed.
• Outside Scope: Includes salaries and non-business activities.

Registration is done through HMRC’s online portal

04

Charging and Reclaiming VAT

Output and Input Tax

• Output Tax: VAT charged on sales.
• Input Tax:VAT paid on business purchases.

Reclaiming VAT

• You can reclaim VAT if expenses are for business purposes and supported by a valid VAT invoice.

Allowable vs Disallowable Expenses

• Allowable: Rent, utilities, stationary, accountancy fees.
• Disallowable: Client entertainment, some motor vehicle purchases.

VAT Invoices Must include:

• VAT number
• Invoice date and number
• Description of goods/services
• VAT amount and rate

05

Making Tax Digital (MTD) for VAT

• All VAT-registered businesses must follow MTD rules.
• Requires digital records and submission via HMRC-compatible software.
• Benefits include fewer errors, quicker submissions, and improved cash flow insights.
• We help clients set up and stay compliant with MTD.

06

VAT Schemes

Standard VAT Accounting

• Default method where VAT is accounted on invoices issued and received.

Flat Rate Scheme (FRS)

• For businesses with turnover up to £150,000.
• Pay a fixed percentage of turnover; simplified reporting.
• Limited input VAT reclaim.

Cash Accounting Scheme

• Turnover up to £1.35 million.
• VAT accounted for on money received and paid, aiding cash flow.

Annual Accounting Scheme

• For turnover up to £1.35 million.
• Submit one VAT return per year with interim payments.

Margin and Retail Schemes

• Margin schemes apply to second-hand goods, antiques.
• Retail schemes benefit high-volume, low-value transactions.

07

VAT Returns and Payment Deadlines

VAT Return (VAT100) Includes:

• Output and input tax
• Net VAT due/refundable

Reporting Periods

• Typically quarterly, but monthly and annual options are available.

Submission & Payment Deadlines

• Due 1 month and 7 days after VAT period ends.
• Payments via BACS, CHAPS, Direct Debit, or online banking.

08

VAT Penalties and Interest

• New penalty system (Jan 2023): Points-based for late submissions.
• Penalty thresholds: 2 points (annual), 4 (quarterly), 5 (monthly).
• Financial penalties apply when limits are reached.
• Interest charged on late payments.

09

International VAT Overview

• Postponed VAT Accounting (PVA): VAT on imports reported on VAT return.
• Export rules vary for EU and non-EU countries.
• Special considerations apply to Northern Ireland.

10

Key Terms and Glossary

• VAT Registration Threshold
• Output Tax / Input Tax
• VAT100 (VAT Return)
• MTD (Making Tax Digital)
• Flat Rate Scheme (FRS)
• Cash / Annual Accounting Scheme
• Effective Date of Registration
• Zero-Rated / Exempt Supplies
• Reverse Charge