What you need to know about VAT

What is VAT?

VAT (Value Added Tax) is a tax that is charged on most goods and services that VAT registered businesses provide in the United Kingdom (UK). It’s also charged on goods and some services that are imported from countries outside the European Union (EU), or brought into the UK from other EU countries.

For more information go to www.hmrc.gov.uk/vat/start/introuduction.htm

Keeping records and accounts

You need to keep complete and up to date business records and VAT records. You can keep your records on paper or on a computer, whatever is easiest for you. Just make sure that:
• you can work out your VAT correctly
• they are easily accessible, in case a HMRC officer visits you
• you keep the records for six years.

The type of records you keep will depend on the type of business you run.

For example, if you run a retail business you should keep a record of each day’s takings the total VAT you charged and all of the till rolls. If you charge by invoice, you should keep a list of the invoices you issued, in date order, showing the VAT charged in a separate column. You should also keep copies of the invoices.

For business purchases you need to keep a record of your purchases, the VAT you were charged on them, and copies of the purchase invoices. Make sure you also do this for any petty cash purchases that you make-this is often overlooked.

If you use a tax adviser, Agent or someone else to do your books, and you want them to speak to us on your behalf, please complete form 64-8 Authorising your agent and send to HMRC. To download a copy of form 64-8, go to www.hmrc.gov.uk/64-8pdf

For general advice about keeping records, refer to our tax helpsheet TH FS1Keping records for business-what you need to know, go to www.hmrc.gov.uk/factsheet/record-keeping.pdf

For VAT specific advice on keeping records, go to
www.hmrc.gov.uk/vat/managing/returns-accounts.htm

VAT rates

Once you are registered for VAT, you have to charge VAT on your sales. Charge the standard rate on all goods and services you supply, unless you know that they fall into another category. There are currently three rates of VAT:

• Standard rate – 20%
• Reduced rate – 5%
• Zero rate. This is not the same as being ‘exempt’ of ‘outside of VAT’

You must not charge VAT (or reclaim VAT) on goods and services that are exempt from VAT or outside the scope of VAT.

For full details, go to www.hmrc.gov.uk/vat/forms-rates/rates.htm