United Kingdom VAT Guide for Businesses
Value-added tax was introduced in the United Kingdom in 1973, when the UK joined the European Economic Community. Originally, the aim for VAT was to replace purchase tax.
Throughout the following decades, the VAT ruling system of the United Kingdom has gone through some major changes, such as the change of standard rate of VAT from 17.5% to 20% in 2011. More recently, the UK leaving the EU in January 2021 has resulted in some changes regarding VAT reporting obligations.
What is the VAT Rate
in the UK?
Number of returns per year: 4
The standard VAT rate in the United Kingdom is 20%, which is applicable for most goods and services. However, for certain goods and services (e.g. Children’s car seats, home energy) a reduced rate of 5% VAT can be applied. It is also possible to have 0% VAT on transactions (e.g. for most food and children clothes).
The official tax, payments and customs authority of the United Kingdom is HM Revenue and Customs.
Requirement to Register for VAT
In the United Kingdom, if the taxable turnover of a business is more than £85,000 (GBP), the business has to register for VAT. Voluntary registration is also possible for businesses with taxable turnover that is less than £85,000, unless everything they sell is exempt. Non-established companies have to register as soon as they supply goods and services within the UK, regardless of any threshold.
Based on the business, it is possible to register online, but most companies have to submit a VAT1 form to HMRC by post. After the registration is processed by HMRC, the business receives the VAT certificate with their VAT ID, and has an obligation to submit VAT returns to the Tax Authority and charge VAT on their transactions.
Returns have to be submitted online, (except for certain exceptional cases) through an online HMRC VAT account.
VAT Filing Frequency
The filing frequency of VAT returns in the UK can be quarterly or monthly. Monthly periods are normally available for businesses who are regularly in a repayment position.
If the business submits quarterly returns and has a payment liability of GBP 2.3 million or more within 12 months or less, HMRC will automatically put the company under payments on account regime, which means that a company will have to make 2 pre-payments in each quarter, and do a balancing payment at the end of the period.
It is important to note that companies under the payment on account regime do not have the 7 days payment and submission extensions, meaning that the VAT return submission and payment deadline is the last day of the month following the end of the period.
Agents and Fiscal Representatives
UK businesses have the opportunity to appoint an agent to act on their behalf regarding their VAT compliance, however it is not compulsory. If the company would like to give authority to an agent, form 64-8 has to be filled, signed and sent to HMRC by post. Furthermore, in case the company has to follow MTD rules, an additional step is required to authorize the agent to submit VAT on their behalf with a compatible API system.
With regards to fiscal representatives, businesses that are not based in the UK and are liable for Air Passenger Duty have to appoint a fiscal representative or an administrative representative and provide a security. Furthermore, since January 2021, UK businesses are required to appoint a fiscal representative in certain other countries due to Brexit.
In January 2021, the UK left the EU Single Market and Customs Union and EU law no longer applies in the UK. After Brexit, there are some extra measures to be aware of. Transactions previously declared as intra-Community acquisitions or sales should be reported as imports and exports, with a few exceptions:
- If the tax point date is prior to 1 January 2021, the transaction is reportable as ICA/ICS in the VAT return
- Goods moved into/from Northern Ireland are still ICA/ICS goods – the Northern Ireland Protocol
- UK businesses are not obliged to submit Intrastat Dispatches and EC Sales List reports (unless the goods are moved from NI)
- Intrastat reporting declarations should still be submitted, however in the VAT return items coming from the EU are also reportable as import
- Businesses can apply for Postponed Import VAT Accounting, or reclaim import VAT based on C79 document
Whenever the business supplies standard-rated or reduced-rated goods or services it must issue a VAT invoice. However, there is no need to issue a VAT invoice if the customer is not VAT registered, for zero-rated supplies, if the customer operates self-billing arrangements or for gift of goods on which VAT is due.
There are certain requirements regarding the content of an invoice, which includes:
- a sequential number based on one or more series which uniquely identifies the document
- the time of the supply (tax point)
- the date of issue of the document (where different to the time of supply)
- Supplier name, address and VAT registration number
- the customer name and address
- a description sufficient to identify the goods or services supplied
- for each description, the quantity of the goods or the extent of the services, the rate of VAT, and the amount payable excluding VAT
- the gross total amount payable, excluding VAT
- the rate of any cash discount offered
- the total amount of VAT chargeable
- the unit price
In case a VAT invoice includes zero-rated or exempt supplies, those items clearly have to show that there’s no VAT payable and a separate total for their values have to be indicated as well. It is also possible to issue simplified VAT invoices if the value of goods is less than £250 and the customer also agrees to have a simplified invoice for the items.
Making Tax Digital (MTD)
VAT registered businesses with a taxable turnover of more than £85,000 are obliged to follow the rules of Making Tax Digital for VAT and sign up online for MTD. For returns starting on or after April 2022, VAT registered businesses will have to follow MTD rules (not only the ones above the threshold).
In case of returns starting after April 2021, companies who report under MTD rules have to follow digital link requirements – recording, storing and processing data digitally, with no breaks in the digital link (e.g. Copy and pasting must be avoided throughout the process – the use of functions is preferable).
VAT return submission deadlines do not change after signing up for MTD, and the deadline can be checked in the e-filing account of the company or usually within the software used for submission as well.
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