Vat
What Is Vat?VAT, or Value Added Tax, is a tax on sales of goods and services. VAT registered businesses collect VAT on the Government’s behalf, by making payments to HM Revenue and Customs.
‘Input tax’ is the VAT a business pays on its purchases and ‘output tax’ is the VAT it charges on its sales. If a registered business receives more output tax from its sales than input tax from its purchases, it has to pay the difference to HM Revenue and Customs. This is the normal trading situation for a pub business.
Sometimes a business may have paid more input tax than output tax, and in this situation HM Revenue and Customs will issue a refund for the difference. An example of this would be where the business has purchased expensive items of equipment on which VAT is charged. The business may have paid out more VAT to the supplier of the equipment than the VAT collected from its own customers.
Rates Of Vat
Goods and services that are VAT-rated are called ‘taxable supplies’ and the value of these supplies is called your ‘taxable turnover’. There are three rates of VAT in the UK:
There are also other goods and services on which VAT is not charged, these are known as ‘exempt supplies’.
Examples of reduced rate items:
- fuel and power used in the home;
- women’s sanitary products.
Examples of zero-rated goods are:
- most food (except meals in pubs, restaurants, cafes and hot take-away food and drink);
- books;
- newspapers;
- children’s clothing and shoes.
Examples of exempt items are:
- insurance;
- betting, gambling and lotteries (but not takings from fruit machines);
- certain types of education and training.
When Do You Need To Register For Vat?
Registering for VAT is compulsory for businesses with an annual turnover above the VAT threshold. (In 2007, this figure was
£ 64,000 but this is regularly revised.) Businesses with a turnover of less than the VAT threshold can register for VAT voluntarily, which can be advantageous in some cases. For example, a business with higher than average input tax payments and lower than average output tax, may find it beneficial. Businesses under the VAT threshold may also consider that VAT registration gives them more credibility in the eyes of customers and suppliers.