If you are preparing for VAT registration, or just trying to figure out if you and your company even need to think about it then this article is for you.
We cover all critical VAT issues from who is eligible, to the registration process and what you need to prepare for registration.
This information is general so make sure you consult a registered taxation professional, as they will be able to advise you on the specifics of the situation.
1. How Much Do I Need To Earn To Pay VAT
There are different guidelines regarding the turnover threshold at which you are required to register and pay VAT.
If you are a member of the European Union the VAT taxable turnover threshold is £85,000. Once your taxable turnover exceeds this amount you must register for, and start managing VAT officially.
You are allowed to register for VAT voluntarily before reaching the taxable turnover threshold, but you are not required to. There can be some benefits to doing this as you can claim VAT deductions on certain expenses. But it does require a lot more paperwork.
If you are not located in the relevant area but still sell goods and services in the European Union and UK, then you will be required to register for and manage VAT regardless of the threshold.
Whether your taxable turnover is over £85,000 or under £85,000, it does not matter if you are operating from outside the EU, you will need to register and comply with VAT requirements.
2. Do You Need A VAT Number?
You only need a VAT number if your taxable turnover in 12 months exceeds £85,000. Under that figure, you are not required to register, but you can choose to register if you wish.
There is also a requirement for individuals and entities outside of the European Union to register for VAT, if they sell relevant goods or services in the EU, regardless of their taxable turnover.
However, when calculating your VAT taxable turnover some things do need to be included in the figures. Services that do not attract VAT include things like financial services, education, healthcare, sports, and charity events. Likewise, certain goods are VAT exempt including goods and items for hobbies, donations to charity, and goods bought from outside the European Union.
3. What Is VAT For Hotels?
Historically, VAT for the hospitality sector (including food, accommodation, and entertainment) was at 20%.
However, during July 2020 and the COVID-19 pandemic, this rate was reduced to just 5%. This was both to provide a source of financial relief for consumers and to try and stimulate more spending to support businesses.
This reduction could not last forever though, as it would mean a considerable reduction in taxation revenue for the government. This discount lasted until 30 September 2021 at which point it was raised, but not back to its previous level. It was raised to 12.5% as a way to continue supporting both consumers and businesses.
This subsequent discount was applied until Mach 2022 before traditional VAT rates of 20% were reinstated.
This Vat calculator worldwide can help you find the exact amount of VAT every time.
4. Is Parking VAT?
Parking your car can be done in various capacities and there are different VAT scenarios. In general, on-street parking is facilitated by the relevant local government, and thus no VAT is charged.
However, if you utilize off-street parking, then this would require dealing with a private individual or entity, and thus VAT is likely to be applied.
5. Should I Charge VAT On My Invoice?
The decision to charge VAT on your invoice is dependent on two things:
- Whether you and your business are registered for VAT
- Whether the goods or services are eligible for VAT
Whether You Are Registered For VAT
If you are not registered for VAT you are not allowed to charge and collect it on your invoices. Doing so without the required registration is a breach. You need to be registered for VAT if your VAT-taxable turnover is over £85,000 in 12 months. If you do not meet this threshold you can still volunteer to register for VAT, and subsequently charge for it on your invoice. If your VAT taxable turnover does cross this threshold then you do need to be VAT registered.
Are Your Goods Or Services Eligible for VAT
The other key factor that will influence whether you need to put VAT on your invoice is whether the goods or services you are selling are VAT exempt. Certain services, including financial services and health care services, are exempt from VAT, thus it would not be appropriate to add VAT to the invoice. Similarly, some goods, including goods from outside the EU and UK are not required to include VAT.
6. Can I Claim VAT Without A VAT Receipt
If you wish to reclaim VAT on eligible purchases you or your business has made then you must have a VAT-compliant receipt. If you do not have a VAT-compliant receipt you cannot reclaim the VAT.
7. Is VAT Different From Customs Duty?
Yes, VAT and customs duty are two separate things. Customs duties are arbitrarily determined by each country and vary from item to item based on several different characteristics.
In many cases, you don’t need to pay VAT for items you have purchased from outside of the EU or UK.
For a lot of consumer goods, customs duties are between 5-7% of the import value.
While custom duty may vary, VAT does not change.
8. What Is VAT Deregistration?
VAT deregistration describes the process of removing your company from the HMRC register of VAT-eligible companies.
VAT deregistration should be considered in a variety of situations, including:
- The registered person or entity is no longer trading in relevant goods and services
- The value of VAT taxable turnover decreases below the threshold
If you have registered for VAT voluntarily, then you must wait for at least 12 months before commencing the VAT de-registration process.
9. Is VAT Going Digital?
Yes, the VAT process has now officially gone digital. As of April 2022 VAT registered businesses are required to prepare to lodge and manage their VAT affairs digitally.
10. Is There VAT On Flooring?
Yes, carpets and other floor coverings are eligible for VAT and charged at the standard rate.
11. Why Was VAT Introduced?
The VAT was implemented to resolve a range of problems associated with traditional sales taxation policies. It is one of the biggest revue drivers for the government, behind income tax
12. Does VAT Replace Income Tax?
VAT does not replace the income tax people pay, it is a different type of tax designed to increase government revenue without having to keep increasing income tax. It is a tax based on the value added to various goods and services across the whole economy, not just on the wages of workers.
13. What Documents Are Needed For VAT Registration?
Many different documents are required to register for VAT, depending on the nature of the entity that is registering.
If you are registering a company for VAT then you will need:
- Incorporation Certificate
- Names of People Involved In The Firm
- Address proof of the Director
- ID Proof of Director
- Partnership Deed (if relevant)
- All relevant contacts details
These documents listed are just a sample of what you will need to prepare in readiness for VAT registration. Ensure you consult a taxation professional with VAT expertise as you prepare for VAT registration.