A transaction is within the scope of VAT if:
- there is a supply of goods or services
- made in the UK
- by a taxable person
- in the course or furtherance of business
Input VAT and Output VAT
Businesses that are VAT registered charge VAT on their sales. This is known as output VAT and the sales are referred to as outputs. Similarly, VAT is charged on most goods and services purchased by the business. This is known as input VAT.
The output VAT is being collected from the customer by the business on behalf of HMRC and must be regularly paid over to them. However, the input VAT suffered on the goods and services purchased by the business can be deducted from the amount of output VAT owed. Please note that certain categories of input tax cannot be reclaimed. Such as third party UK business entertainment and for most business cars.
Taxable supplies are mainly either standard rated (20%) or zero rated (0%). The standard rate was 17.5% prior to 4 January 2011. Additionally, there is a reduced rate of 5% which applies to a small number of certain specific taxable supplies. The supplies that are not taxable are known as exempt supplies.
There is an important distinction between exempt and zero rated supplies.
- If your business is making only exempt supplies you cannot register for VAT and therefore cannot recover any input tax.
- If your business is making zero rated supplies you should register for VAT. As your supplies are taxable (but at 0%) and recovery of input tax is allowed.
If you are starting or have started a business in Lewisham, Bromley, Kent and London areas we, at Adiva Accountants in Lewisham, can help you comply with the VAT regulations. Please do not hesitate to contact us at Adiva Accountants in Lewisham.