VAT

Value Added Tax (VAT) is charged on most business-to-business and business-to-consumer transactions in the UK and on goods and some services, imported from other European Union (EU) countries and from outside the EU.

VAT is charged to a buyer by a VAT-registered seller. It is reclaimed by a VAT-registered buyer after goods and services are purchased. VAT registration is required if turnover for the previous 12 months is over a specific limit – currently £73,000 – or if turnover is likely to soon exceed this limit.

There are three different rates of VAT, which apply to different types of goods and services:

• the standard rate of VAT of 20 per cent, which replaced the previous 17.5 per cent rate on 4 January 2011,applies to all goods and services unless they are zero rated, reduced rate or exempt.
• reduced rate: five per cent this is charged on items including domestic heating fuel, children’s car seats, nicotine replacement products to help people stop smoking
• zero rate: including books and newspapers, protective boots and helmets for industrial use, children’s clothing and footwear and water supplies.

If you are registered for VAT, you must keep certain business records and VAT records of your sales and purchases. You must also keep a separate VAT account.

From 1 April 2010, most VAT-registered businesses have had to submit online VAT returns and pay electronically. By April 2012 this will apply to all VAT- registered businesses.

How to pay:
At the end of each VAT period – usually every three months – you need to fill in a VAT return. A VAT return tells HM Revenue & Customs (HMRC) how much VAT you charged to your customers, how much VAT you paid to your suppliers and the amount of VAT you must pay to or reclaim from HMRC.

VAT returns must be filed and any VAT owed paid by the due date. Failure to do so can lead to a surcharge of a percentage of the unpaid VAT. The percentage of unpaid VAT charged will rise if filing or payments continue to be late.

VAT-registered businesses submitting VAT returns online must also pay any VAT due electronically.

For more information, visit www.hmrc.gov.uk/vat

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