VAT Accountancy Service

VAT registered businesses act as unpaid tax collectors and are required to account both promptly and accurately for all the tax revenue collected by them.

The VAT system is policed by HMRC with heavy penalties for breaches of the legislation. Ignorance is not an acceptable excuse for not complying with the rules.

WHAT IS VAT

A transaction is within the scope of VAT if:
there is a supply of goods or services
made in the UK
by a taxable person
in the course or furtherance of business.

Inputs and outputs

Businesses charge VAT on their sales. This is known as output VAT and the sales are referred to as outputs. Similarly VAT is charged on most goods and services purchased by the business. This is known as input VAT.

The output VAT is being collected from the customer by the business on behalf of HMRC and must be regularly paid over to them.

However the input VAT suffered on the goods and services purchased can be deducted from the amount of output tax owed. Please note that certain categories of input tax can never be reclaimed, such as that in respect of business entertainment and for most business cars.


Taxable supplies are mainly either standard rated (17.5%) or zero rated (0%).
For the period 1 December 2008 to 31 December 2009 the standard rate of VAT has been reduced to 15%.
There is in addition a reduced rate of 5% which applies to a small number of certain specific taxable supplies.

There are certain supplies that are not taxable and these are known as exempt supplies.
There is an important distinction between exempt and zero rated supplies.

If your business is making only exempt supplies you cannot register for VAT and cannot therefore recover any input tax.

If your business is making zero rated supplies you should register for VAT as your supplies are taxable (but at 0%) and recovery of input tax is allowed

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