Frequently asked questions about VAT filing answered by ANNA’s Tax Terrapin

Value Added Tax (VAT) in the UK is a tax on consumer expenditure and is charged on business transactions, imports, and acquisitions. It was introduced by the Finance Act 1972 and came into effect on 1 April 1973. The legislation relating to VAT is contained in the Value Added Tax Act 1994 (VATA 1994).

VAT is imposed on the supply of goods and services in the UK by way of business. The definition of business includes a trade, profession, or vocation but goes wider than this and includes the activities of clubs and recreational bodies and some of the activities of charities and non-profit-making bodies.

The VAT registration threshold is subject to alteration and is prescribed in Sch1 para1 Value Added Tax Act 1994. VAT is charged at a specified positive rate or at a zero rate on the value of the supplies of goods and services within the charge. There are currently two positive rates: 20% and 5%. The reduced rate of 5% applies only to a limited range of specified supplies. There is also provision for the supply of some categories of goods and services to be exempt from VAT.

Businesses have to register for VAT if their VAT taxable turnover is more than £85,000. They can also choose to register if their turnover is less than £85,000. As a VAT-registered business, you must include VAT in the price of all goods and services at the correct rate, keep records of how much VAT you pay for things you buy for your business, account for VAT on any goods you import into the UK, report the amount of VAT you charged your customers and the amount of VAT you paid to other businesses by sending a VAT return to HM Revenue and Customs (HMRC) - usually every 3 months, and pay any VAT you owe to HMRC.

Source HMRC articles:

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim31501

https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm530020

https://www.gov.uk/how-vat-works/print