Value-Added Tax (VAT)
The paperwork
You can download the forms you need to register for VAT or to apply to cancel your registration:
The forms are in PDF format. You'll need to have Acrobat Reader installed to use these forms. It's a free program available for download from Adobe by following this link:
An introduction to exempt and zero rated items
It is important for businesses to realise that there will be no VAT that can be recovered on zero rated or exempt items. This should be obvious in most cases because the VAT invoice will clearly show VAT as being zero. However since invoices for less than £100 do not always specifically show the actual value of the VAT it is sometimes necessary for the purchaser to calculate the VAT.
To do this you must:
- ensure that the receipt or invoice shows the supplier's VAT number - without this you cannot reclaim the VAT
- check the list below to see whether the item is zero-rated or exempt. If it is then there is no VAT to recover anyway so you need proceed no further
- if the item is standard rated then you can calculate the VAT element by multiplying the fully inclusive price by 7 and dividing by 47. This then gives you how much of the invoice's total value is VAT which can be recovered.
Most types of expenses not listed below will be subject to VAT at the standard rate of 17.5%.
Exempt or zero-rated items
| Category | Description |
|---|---|
| Food & Drink | except alcohol, meals out, hot takeaways and certain foods such as ice cream & confectionery |
| Water | sewerage and water services for domestic use |
| Books | books, newspapers, magazines, music and maps; but not stationery & diaries |
| Exports of goods | but only some exports of services are exempt |
| Passenger transport | such as trains and buses, but not taxis or hire cars (although a VAT receipt must support the claim) |
| International freight | -- |
| Drugs & medicines | where prescribed by a doctor |
| Clothing | clothing and footwear except for protective boots & helmets |
| Land | Sales, leasing & rents on land & buildings - but not hotels, holiday accommodation, parking & exhibition stands |
| Insurance | premiums & claims |
| Postal services | but not telegrams, telephone & telex |
| Most finance costs | such as interest, bank charges etc. |
| Education | education and job training |
| Health services | doctors, dentists etc |
| Subscriptions | to trade unions or professional organisations |
Note: this list is not and cannot be exhaustive. It is intended to show the major exempt and zero rated elements that are relevant to small businesses. Ask us if you are in any doubt over the VAT status of an item.
Expenses on which VAT cannot be recovered
Unfortunately there are some expenses on which you have to pay VAT but for which you can't claim it back on your VAT return. For these items you must include the VAT inclusive cost under the heading of the expense and put zero under the VAT heading in your accounts.
The offending items include:
| Category | Description |
|---|---|
| Personal Use | VAT on the personal use portion of expenses which are incurred partly for business and partly for personal use |
| Cars | VAT on motor cars purchased |
| Petrol | VAT on petrol for motor cars used by employees - this cannot be recovered unless you either pay an additional amount of VAT each quarter (known as the scale charge) or you only pay for petrol used for business purposes |
| Exempt Sales | VAT on some of your purchases if some of your sales are exempt from VAT. Exempt Sales include land, insurance, finance, education, health and welfare, burials and cremations etc. (If you think this is relevant to your business seek professional advice) |
| Entertaining | VAT on business entertaining - includes meals, accommodation, trips to theatre etc
But VAT on staff subsistence and the entertainment of staff is often reclaimable (seek professional advice on this one!) |
Contact us
This tip sheet is provided to you completely free of charge but if you would like further information please call us now to arrange a meeting. Print this voucher for a free initial meeting.
