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Value Added Tax (VAT)

Registration for VAT is compulsory for businesses whose turnover is over £73,000. You must register in 30 days of reaching this threshold. If your turnover is below £73,000, you can register voluntarily.

Registered businesses pay VAT on most purchases. This is called input tax. Registered businesses charge VAT on the goods and services they sell. This is called output tax.

There are four types of VAT

  1. Standard rate - currently 20% - applies to most services and goods.
  2. Reduced Rate of 5% which applies to a limited number of services and goods.
  3. Zero Rate of 0% which applies to a limited number of services and goods.
  4. Exempt Goods and Services. You pay no VAT on some excempt services and goods.

The Flat Rate VAT Scheme

For small organisations the administrative costs involved in payment of VAT can be prohibitive. If your VAT taxable turnover is less than £150,000, you can simplify your VAT accounting by taking advantage of the Flat-Rate Scheme.

  • With this scheme you calculate your VAT payments as a percentage of your total VAT-inclusive turnover. Although you cannot reclaim VAT on purchases - it is taken into account in calculating the flat rate percentage - the Flat-Rate Scheme can reduce the time that you need to spend on accounting for and working out your VAT. Even though you still need to show a VAT amount on each sales invoice, you don't need to record how much VAT you charge on every sale in your accounts. Nor do you need to record the VAT you pay on every purchase.
  • The percentage flat-rate you pay is determined by the type of business you run. Rates can be found on the HM Revenue & Customs website.
  • If you register for the Flat Rate Scheme in your first year of VAT registration, you can take advantage of a 1% reduction in your flat rate percentage.

This material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.