VAT is a form of turnover tax. It is intended to be borne wholly by the final consumer and paid where that consumption takes place. To seek to minimise opportunities for fraud it is however charged on all UK sales, even to another business (B2B supplies). A business is entitled to deduct the VAT it pays, so although it charges VAT on its sales it accounts for VAT to HMRC only on the net, ie the value added by it to the product or service.
VAT is a European tax. As such it is broadly similar throughout the EU. However each country fixes its own rate (within a band fixed at EU level) and the rules can vary from country to country, sometimes significantly.
The position is complicated by the fact that some types of business are exempt from VAT – which means they are treated as final consumers and cannot recover VAT charged to them – and some types of supplies are zero-rated (taxed at 0%) – which means that they technically attract VAT so the business can get a refund of VAT charged to it.
The standard rate of VAT in the UK is 20%, which is currently the same as the rate of corporation tax. However as turnover is normally far greater than profits, the consequences of getting VAT wrong can be far more serious. HMRC can assess unpaid VAT for four years back. If a business should have been registered for VAT but wasn’t, they can go back 20 years.
VAT is payable on UK sales, even remote sales by a foreign business. However the rules for sales to consumers (B2C supplies) for overseas businesses are different from B2B supplies. The rules for services also differ from those for goods, and different rules apply if the business has a UK presence such as an office or warehouse here.
VAT returns must be submitted electronically.
CBW can help you to register for VAT. Our tax consultants can advise how to structure your UK operations to minimise VAT risks and can guide you through the VAT minefields that are scattered throughout the legislation. Most of the legislation is made by The Treasury, or HMRC, under delegated powers and can be difficult to find.
Areas of particular complexity include land and buildings, the correct identification of what is being supplied, international supplies of goods and services, partially exempt businesses and financial services.