VAT is charged on things like:
These are known as ‘taxable supplies’. There are different rules for charities.
VAT-registered businesses:
If you’re a VAT-registered business you must report to HM Revenue and Customs (HMRC) the amount of VAT you’ve charged and the amount of VAT you’ve paid. This is done through your VAT Return which is usually due every 3 months.
You may want to appoint an agent to deal with HMRC on your behalf (e.g Elite Accountax)
You must account for VAT on the full value of what you sell, even if you:
If you’ve charged more VAT than you’ve paid, you have to pay the difference to HMRC. If you’ve paid more VAT than you’ve charged, you can reclaim the difference from HMRC.
There are 3 different rates of VAT and you must make sure you charge the right amount.
Most goods and services are standard rate. You should charge this rate unless the goods or services are classed as reduced or zero-rated.
This includes any goods below the distance selling threshold you supply from Northern Ireland to non-VAT registered EU customers. If you go over the threshold, you’ll have to register for VAT in that country.
When you charge this rate can depend on what the item is as well as the circumstances of the sale, for example:
Zero-rated means that the goods are still VAT-taxable but the rate of VAT you must charge your customers is 0%. You still have to record them in your VAT accounts and report them on your VAT Return. Examples include:
If you sent goods to the EU from Northern Ireland, you’ll need their VAT number and paperwork proving that the goods have been sent within certain time limits (usually 3 months).
Rates can change and you must apply any changes to the rates from the date they change.
You need to know the right VAT rate so you can charge it correctly and reclaim it on your purchases.
If a transaction is a standard, reduced or zero-rated taxable supply, you must:
You may be able to reclaim the VAT on purchases that relate to these sales.
You’ll need to make a calculation when charging VAT on goods or services, or when working out the amount of VAT you can claim back on items which were sold inclusive of VAT.
To work out a price including the standard rate of VAT (20%), multiply the price excluding VAT by 1.2.
To work out a price including the reduced rate of VAT (5%), multiply the price excluding VAT by 1.05.
To work out a price excluding the standard rate of VAT (20%) divide the price including VAT by 1.2.
To work out a price excluding the reduced rate of VAT (5%) divide the price including VAT by 1.05.
You cannot charge VAT on exempt or ‘out of scope’ items.
Exempt goods or services are supplies that you cannot charge VAT on.
If you buy or sell an exempt item you should still record the transaction in your general business accounts. Examples of exempt items include:
Get a list of goods and services that are VAT exempt.
Businesses that sell only VAT-exempt goods and services cannot register for VAT.
If you start selling items that aren’t exempt, you can register for VAT voluntarily. You must register if the total value of non-exempt goods and services goes over the VAT taxable turnover threshold.
Some goods and services are outside the VAT tax system so you cannot charge or reclaim the VAT on them. For example, out of scope items include:
As a VAT-registered business, you can sell certain goods and services to charities at the zero or reduced rate of VAT.
It’s your responsibility to check the charity is eligible, and to apply the correct rate.
Community amateur sports clubs (CASCs) don’t qualify for VAT reliefs for charities.
To make sure the charity is eligible, ask them for:
The charity should give you either:
Charities are legally required to give you an eligibility certificate when you supply eligible building or construction services to them at zero VAT. The certificate must contain specific information.
A declaration is not legally required for other items you sell at the zero or reduced rate, but you should ask for one to prove the charity is eligible for the relief.
These sample declarations contain examples of the information a charity should give you when buying:
The written declaration should be separate from the order form or invoice for the goods or services the charity is buying.
You must keep the completed declarations for at least 4 years.
Items that qualify for the reduced rate
You may be able to apply the reduced VAT rate when you sell fuel and power in certain circumstances to an eligible charity.
You may be able to apply the reduced VAT rate when you sell fuel and power in certain circumstances to an eligible charity.
You may be able to apply zero VAT when you sell the following to an eligible charity:
You may also be able to zero-rate some other medical and veterinary equipment when you sell it to:
The money used to buy the equipment must be from charitable or donated funds. This should be stated on the eligibility declaration.
The eligible items include:
When you return goods to a supplier or a customer returns goods to you, the balance of payment can be settled by issuing either a:
If you exchange the goods for goods of the same value you don’t need to issue a new VAT invoice.
These must show the same information as the VAT invoice and:
VAT may have to be charged on discounts and deals.
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