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Should I be registered for VAT?

Value Added Tax (VAT) is a tax charged on the sale of most goods and services. Examples of taxable supplies include sale of goods, hire purchase, rental, exchange, and gifts in kind. These are charged at one of three rates:

  1. Zero rate - has nil percentage rates applied to goods such as books & newspapers, children's clothing and new house construction.

  2. Reduced rate - a 5% rate is charged on domestic fuel and power.

  3. Standard rate - currently 20%, which is applied to goods and services that are not exempt, zero or reduced, rated.

Services that are exempt include:

  • Insurance

  • Education

  • Some sales & leases of property.

If your sales reach, or are likely to reach the current VAT threshold of £85,000 per year, then you must register for VAT. This is looked at on a rolling 12 month basis, not for each accounting year.

There is also an option to register for VAT even if your sales have not reached the current threshold allowing you to claim back VAT on purchases if:

  • You make zero rated supplies - because your customers will not have to pay VAT

  • Your customers are themselves VAT registered - because they may be able to claim back VAT you charge them.

VAT is a very important part of business and cannot be ignored. It can be very confusing and you may wish to seek expert help from a local accountant or a business adviser. You should be aware that the VAT threshold and rates may change from time to time and are the responsibility of the Chancellor of the Exchequer.


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