All there is about VAT


To begin, Value Added Tax [VAT], is a tax that is charged on goods and services in the UK. In the UK, a government tax agency ( Her Majesty's Revenue and Customs/HMRC) holds and manages the registry of sellers who can charge and claim VAT. The cost of VAT is included on to the price of products and services sold to customers within the UK and may include those that are imported in to the UK from other overseas, but they can also reclaim VAT on most purchases. However, it is important to note that unless your business is VAT registered by an accounting service it will not be allowed to engage in this. As a VAT registered business you are obliged to charge VAT at a rate set by HM Revenue & Customs (HMRC) on any relevant goods or services. The rate will be dependent on what is being sold, though most supplies are taxed at 20%. Of course, you can also reclaim the VAT you pay – but if your output tax (the VAT you charge) exceeds your input tax.


Who are those liable to pay VAT?


A VATable registered business is one that deals in VATable goods and services. Examples of such include:

  • A limited liability company such as Sarahdine place Limited
  • A firm such as Sarah Law & Co.
  • A sole trader such as Sarah & Brothers
  • An individual such as Sarah shops
  • A Club or society such as Sarah Social Club

The percentage amount of the money customer pays for your goods and services is referred to as your OUTPUT VAT meanwhile the percentage amount of the money that is been paid when you purchase any goods and services,is referred to as your INPUT VAT. To calculate the amount that goes to the government, has to be the difference between INPUT VAT from the OUTPUT VAT. Which is, Total VAT payable to the government = Output VAT – Input VAT. Like any tax, the VAT is a source of revenue for public spending and also generates a revenue for the government.


The VAT rates


There are different rates of Value-Added Tax (VAT) to be charged by the business is predetermined based on the item that is being sold or the service being offered.

Standard rate of VAT


Value-Added Tax (VAT) rates are Standard rate at 20% applies to numerous goods and services. Some examples of goods and services subject to the standard rate are: solicitor services, furniture, batteries, motor vehicles, consultancy services and tyres.


Reduced rate of VAT


Value-Added Tax (VAT) rates are reduced rate at 5% applies to certain goods and services including:certain fuels, certain building services, repair services, cleaning and maintenance services (generally), certain photographic supplies, the supply of food and drink (excluding alcohol, soft drinks and bottled water) in the course of catering, the supply, by means of a vending machine, of food and drink that would otherwise be zero-rated, hot take-away food and hot tea and coffee, hotel lettings, for example, guesthouses, caravan parks or camping sites, amusement services of the kind normally supplied in fairgrounds or amusement parks, hairdressing services, supply of greyhounds, certain printed matter, such as brochures, leaflets, catalogues or printed music.

Zero rate of VAT


The zero rate of Value-Added Tax (VAT) as the name implies has Value-Added Tax (VAT) rates at 0% includes books and newspapers, children’s clothing, public transport and most food (excluding meals-in and takeaways), exports, intra-Community supplies of goods to VAT-registered persons in other European Union (EU) Member States, oral medicine Livestock rate of VAT The livestock rate of Value-Added Tax (VAT) applies to livestock in general, and to horses that are normally intended for use in the preparation of foodstuffs or for use in agricultural production Use the search facility to check the rates applicable to an extensive list of goods and services.


VAT thresholds


The VAT threshold, also known as the VAT registration threshold, is the amount of money you can earn before you need to register for VAT. It is a necessity to register your business for VAT when total revenue exceeds the registration threshold. , if your sales or total EU acquisitions are close to £85,000 for a twelve month (or shorter) historical period then you must register for VAT. This is termed as the “VAT taxable turnover” If you are below the thresholds you may elect to register for VAT so you need to be aware of how VAT could affect your business as you grow. You can also register voluntarily below this threshold. Early VAT registration prevents the possibility of incurring a penalty charge.


How is your turnover determined?


The VAT registration threshold is based on your turnover. Where you purchase stock for resale, you may reduce your actual turnover by the amount of VAT borne on those purchases. This reduction is only for the purpose of determining your turnover for registration purposes. Example Sarah owns an eatery “Sarahdine place Limited “. If Sarah has an annual turnover of £95,000. she has incurred VAT on his stock purchased for re-sale in the amount of £25000. When determining whether she has breached the threshold, Sarah can reduce her turnover figure by the £25000. £95,000 - £25000 = £70,000 As the adjusted turnover is below the registration limit of £85,000, she is not obliged to register.but it were more then or at then it is mandated upon her to register for VAT.

Where does 121 Company formation come in?


We can assist you in registering your VAT for Limited companies. Once you have notified Us of your interest or your VAT inclusive package purchase, We'll email you the registration form to complete. Once emailed back to us, it is thoroughly checked and approved before being submitted to HMRC. Once the application has been submitted to HMRC, it takes around 4-6 weeks to be processed. For non-UK residents registration for VAT you will be required to send through to US the following documents as proof of identification. A copy of government issued photo identification, such as a passport, photo driver’s licence or national identity card Two secondary copies of correspondence which includes your name and address, such as a recent utility bill (unfortunately bank statements and mobile phone bills cannot be accepted).




What happens if I've made a mistake on my application?


If your form is incomplete or contains any errors, a member from our friendly team will contact you to obtain the correct information. Only once all relevant sections of the form are accurate will it be sent to HMRC.


Why register for VAT?


If your business sells or provides taxable supplies to another business or non-business customer, you must be registered to charge Value Added Tax (VAT) when your turnover exceeds the VAT threshold of £85,000 within 12 months. If you are not VAT registered, you are not able to reclaim any VAT charges that you pay when you purchase goods or services from another VAT registered business.


How does the VAT application process work?


We'll email you the application form which you will need to complete and email back to us. Once we have checked over your form, we will create a Government Gateway account and will submit your application online. We will then email you HMRC's Acknowledgement Reference Number as confirmation of submission. It takes around 4-6 weeks for HMRC to process. Once your application has been successful, you will receive a VAT registration certificate with your VAT registration number.