WHERE LOCAL BUSINESS GROWS

How VAT Works

You can only charge Value Added Tax (VAT) if your business is registered for VAT. Find out what this involves and read an overview of how VAT works, including when to charge and what you can reclaim.


When can I charge VAT, and on what?
 

You can only charge VAT if your business is registered for VAT.

VAT is charged on things like:

  • business sales - eg when you sell goods and services
  • hiring or loaning goods to someone
  • selling business assets
  • commission
  • items sold to staff - eg canteen meals
  • business goods used for personal reasons
  • ‘non-sales’ like bartering, part-exchange and gifts
These are known as ‘taxable supplies’. There are different rules for imports and exports and charities.

Responsibilities

VAT-registered businesses:

  • must charge VAT on their goods or services
  • may reclaim any VAT they’ve paid on business-related goods or services
If you’re a VAT-registered business you must report to HM Revenue and Customs (HMRC) the amount of VAT you’ve charged and the amount of VAT you’ve paid. This is done through your VAT Return which is usually due every 3 months.

You may want to appoint an agent to deal with HMRC on your behalf.

You must account for VAT on the full value of what you sell, even if you:

  • receive goods or services instead of money (eg if you take something in part-exchange)
  • haven’t charged any VAT to the customer - whatever price you charge is treated as including VAT
If you’ve charged more VAT than you’ve paid, you have to pay the difference to HMRC. If you’ve paid more VAT than you’ve charged, you can reclaim the difference from HMRC.

VAT rates
 

There are 3 different rates of VAT and you must make sure you charge the right amount.

Get a list of reduced or zero-rated goods and services

Standard rate

Most goods and services are standard rate. You should charge this rate unless the goods or services are classed as reduced or zero-rated.

Reduced rate

When to charge this rate can depend on the item being provided but also the circumstance of the sale. For example:

  • children’s car seats and domestic fuel or power are always charged at 5%
  • mobility aids for older people are only charged at 5% if they’re for someone over 60 and the goods are installed in their home
Zero rate

Zero-rated means that the goods are still VAT-taxable, but the rate of VAT you must charge your customers is 0%. Examples of zero-rated goods include:

  • books and newspapers
  • children’s clothes and shoes
  • motorcycle helmets
You still have to record zero-rated transactions in your VAT accounts and report them on your VAT Return.

Rates can change and you must apply any changes to the rates from the date they change.

What you must do when charging VAT
 

You need to know the right VAT rate so you can charge it correctly and reclaim it on your purchases.

If a transaction is a standard, reduced or zero-rated taxable supply, you must:

  • charge the right rate of VAT
  • work out the VAT if a single price is shown that includes or excludes VAT
  • show the VAT information on your invoice
  • show the transaction in your VAT account - a summary of your VAT
  • show the amount on your VAT Return
You may be able to reclaim the VAT on purchases that relate to these sales.

You can’t claim back all of the amount you’ve paid if you pay the wrong amount of VAT on a purchase.

VAT-inclusive and exclusive prices
 

You’ll need to make a calculation when charging VAT on goods or services, or when working out the amount of VAT you can claim back on items which were sold inclusive of VAT.

VAT-inclusive prices

To work out a price including the standard rate of VAT (20%), multiply the price excluding VAT by 1.2.

To work out a price including the reduced rate of VAT (5%), multiply the price excluding VAT by 1.05.

VAT-exclusive prices

To work out a price excluding the standard rate of VAT (20%) divide the price including VAT by 1.2.

To work out a price excluding the reduced rate of VAT (5%) divide the price including VAT by 1.05.

When not to charge VAT
 

You can’t charge VAT on exempt or ‘out of scope’ items.

Exempt goods and services Exempt goods or services are supplies that you:

  • can’t charge VAT on
  • must not include in your VAT records
If you buy or sell an exempt item you should still record the transaction in your general business accounts. Examples of exempt items include:

  • insurance
  • postage stamps or services
  • health services provided by doctors

VAT registration

Businesses that sell only VAT-exempt goods and services don’t have be registered for VAT. If you start selling items that aren’t exempt, you can register for VAT voluntarily. You must register if the total value of non-exempt goods and services goes over the VAT taxable turnover threshold

Out of scope

Some goods and services are outside the VAT tax system so you can’t charge or reclaim the VAT on them. For example, out of scope items include:

  • goods or services you buy and use outside of the EU
  • statutory fees - like the London congestion charge
  • goods you sell as part of a hobby - like stamps from a collection
  • donations to a charity - if given without receiving anything in return

Charging VAT to charities
 

As a VAT-registered business, you can sell certain goods and services to charities at the zero or reduced rate of VAT.

It’s your responsibility to check the charity is eligible, and to apply the correct rate.

Community amateur sports clubs (CASCs) don’t qualify for VAT reliefs for charities.

Check the charity is eligible

To make sure the charity is eligible, ask them for:

  • evidence that they’re a charity
  • a written declaration or ‘certificate’ confirming they meet the conditions for the particular VAT relief
Evidence of charitable status

The charity should give you either:

  • their Charity Commission registration number
  • a letter of recognition from HM Revenue and Customs (HMRC) if they’re not registered with the Charity Commission for England and Wales (eg if they’re a Scottish or Northern Irish charity)
Written declaration

Charities are legally required to give you an eligibility certificate when you supply eligible building or construction services to them at zero VAT. The certificate must contain specific information.

A declaration is not legally required for other items you sell at the zero or reduced rate, but you should ask for one to prove the charity is eligible for the relief.

These sample declarations contain examples of the information a charity should give you when buying:

  • medical and scientific equipment, motor vehicles and computer software
  • charity advertising
  • goods and services for disabled people
The written declaration should be separate from the order form or invoice for the goods or services the charity is buying.

You must keep the completed declarations for at least 4 years.

Items that qualify for the reduced rate

You may be able to apply the reduced VAT rate when you sell fuel and power in certain circumstances to an eligible charity.

Items that qualify for the zero rate You may be able to apply zero VAT when you sell the following to an eligible charity:
  • advertising and items for collecting donations
  • aids for disabled people
  • construction services
  • drugs and chemicals
  • equipment for making ‘talking’ books and newspapers
  • lifeboats and associated equipment, including fuel
  • medicine or ingredients for medicine
  • resuscitation training models
Equipment for medical and veterinary use

You may also be able to zero-rate some other medical and veterinary equipment when you sell it to:

  • certain health bodies, eg NHS Trusts
  • not-for-profit research institutions
  • charities that provide institutional care, or medical or surgical treatment for chronically sick or disabled people
  • charities that provide transport services for disabled people
  • charities that provide rescue or first aid services to humans or animals
  • someone buying it specifically for donation to one of these bodies
The money used to buy the equipment must be from charitable or donated funds. This should be stated on the eligibility declaration.

The eligible items include:

  • medical, veterinary and scientific equipment
  • ambulances
  • goods for disabled people
  • motor vehicles for medical use<
  • rescue equipment
  • resuscitation training dummies

Returned goods
 

When you return goods to a supplier or a customer returns goods to you, the balance of payment can be settled by issuing either a:

  • replacement invoice
  • credit or debit note

If you exchange the goods for goods of the same value you don’t need to issue a new VAT invoice.

Credit and debit notes

These must show the same information as the VAT invoice and:
  • why it was issued
  • the total amount credited, excluding VAT 

  • the number and date of the original VAT invoice

Discounts and free gifts
 

Discounts

VAT may have to be charged on discounts and deals.

Offer How to charge VAT
Discounts Charged on the discounted price (not the full price)
Gifts Charged on the gift’s full value - there are some exceptions listed below
Multi-buys Charged on the combined price if all the items have the same VAT rate. If not, VAT is ‘apportioned’ as mixed-rate goods
Money-off coupons, vouchers etc No VAT due if given away free at time of a purchase. If not, VAT due on the price charged
‘Face value’ vouchers that can be used for more than one type of good or service No VAT due, if sold at or below their monetary value
Redeemed face value vouchers Charged on the full value of the transaction
Redeemed face value vouchers sold at a discount Charged on the discounted value of the transaction
Link-save offers (buy one get one free or discounted) VAT is apportioned as mixed-rate goods - there are exceptions

Exceptions for gifts and link-save offers

There’s no VAT due on gifts given to the same person if their total value in a 12 month period is less than £50.

VAT is charged on the combined value of link-save items if the incentive product:

  • has a resale value of less than £1
  • has a sale value of less than £5
  • costs you less than 20% of the total of the other items in the offer
  • isn’t sold at a separate price from the main product

Free goods and services

You don’t have to pay VAT on things like free samples if they meet certain conditions.

Supplies Condition to meet so no VAT due
Free samples Used for marketing purposes and provided in a quantity that lets potential customers test the product
Free loans of business assets The cost of hiring the asset is included in something else you sell to the customer
Free gifts The total cost of all gifts to the same person is less than £50 in a 12 month period
Free services You don’t get any payment or goods or services in return

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News

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Smith Brothers appoints finance director as revenues soar

Thursday 20 April 2017

Following unprecedented success over the past twelve months, Elland-based high voltage electrical engineering firm Smith Brothers has appointed Richard King as their financial director. With over 30 years’ experience as a financial adviser, and previous directing roles within SMEs, Richard King brings a wealth of accounting and business expertise at an exciting time in the company’s growth. After a year of significant growth in which turnover increased to over £27m, the power contractor has secured a run of new projects. This will see revenue exceed £40m in the next financial year. Commenting on Richard King’s appointment, director John Smith said: “We’ve expanded our operations massively over the past 12 months, so taking on a financial director was the next logical thing to do. “His impressive track record made Richard an obvious choice for the role, and his effective decision-making and vast financial awareness will be pivotal to our continued growth over the coming year.’ With wide-ranging experience in property, manufacturing, the supply chain and public sector, Richard brings versatile financial management, budget strategy and fundraising skills to the position. He commented: “Joining a fast-growing, end-to-end business like Smith Brothers always brings excitement and challenges in equal measure, but I’m looking forward to both. “The company’s expansion over the past 12 months is certainly something to be proud of, and we’re focused on consolidating that growth this year, with our move to bigger premises and recruitment of additional skilled workers. This will set the groundwork for further expansion into 2018.” Taking charge of the firm’s finances, Richard King joins founders John and Richard Smith, as well as David Ogden and Craig Collinson, on the board of directors. Established in 1990, Smith Brothers works on high voltage power engineering projects up to 132kV, providing turnkey electrical and energy management solutions to a widening client base throughout the UK and overseas.
Posted by Scriba PR
HMRC are “Making Tax Digital”. Are you in the know?

Monday 20 March 2017

The government initiative “Making Tax Digital” was first announced in 2015 and will see huge changes to the current tax system, bringing an end to the tax return by 2020 and requiring businesses to manage their tax affairs digitally. To help businesses understand more about the upcoming changes and how it will affect them, Sheards Accountants will be hosting a free event on Thursday 30th March at Huddersfield Rugby Union Football Club. The event will provide an insight into the operational changes that businesses may face once the new system is enforced as well as the benefits that will be gained from switching to digital tax. Steve Reynard, Regional Manager for QuickBooks, will give an overview of Making Tax Digital and its impact on all businesses, together with an introduction to the QuickBooks platform and how it can assist businesses not only comply with the changes, but take control of their finances.   Digital tax will begin to be enforced in April 2018; self-employed individuals and landlords will be the first to move over to the new system, shortly followed by incorporated businesses. Kevin Winterburn, Director of Sheards Accountancy commented: “We understand that the upcoming changes to the current tax system may seem daunting and that there may be an increased reporting burden, given that financial information will need to be submitted to HMRC on a more regular basis than is currently required. " “But all businesses should have up to date information on their finances in order to make informed business decisions. Making Tax Digital is an opportunity for businesses to get control of their finances, to simplify and modernise their systems and give them valuable information, at the right time.” “Our message to business owners is a simple one. There are fantastic accounting tools now available that can help you improve your business. Look at making them a part of your business as soon as possible, don’t wait for HMRC to enforce it!” The event will take place from 11:30am – 2:00pm and will include a light lunch and an opportunity to network with other guests.
Posted by KC Communications
Sheards Accountancy announce charity partnership with Kirkwood Hospice

Monday 20 February 2017

Leading Huddersfield accountants, Sheards Accountancy, have announced that their charity partnership for 2017 will be with Kirkwood Hospice. The partnership will see Sheards undertake a variety of fundraising activity throughout the year with a target of raising £4,000 which will go towards a piece of vital equipment for the in-patient unit from the Hospice’s Birthday Wish List. Kirkwood Hospice, who are celebrating their 30th anniversary this year, provide free of charge, specialist care to adults across Kirklees who suffer from advanced or progressive illnesses. Sheards will host a number of fundraising events which will include their ever-popular, annual curry night which will be taking place in Spring and has historically seen over 100 local business professionals attend. Kevin Winterburn, Director of Sheards Accountancy commented: “Kirkwood Hospice have been such a huge part of the community for 30 years and have helped so many. We are really looking forward to working towards our fundraising total to support the fantastic work that Kirkwood Hospice do." Kate Leadbeater, Partnership Development Manager of Kirkwood Hospice commented: “Our new charity partnership with Sheards is one that we really value and we can’t thank them enough for choosing Kirkwood Hospice. Sheards have fantastic links to the business community and have some great events planned to promote our work to other local businesses while raising money to support our charity. We really appreciate Sheards’ support and look forward to working with them this year.”
Posted by KC Communications
3 results found 

Events Posted

3 results found 
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Sheards Charity Curry Night
Monday 15 May 2017, 18:00 - 21:00
70, John William Street, Huddersfield, HD1 1EH
£20 - 50 places
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Introduction to Xero Cloud Accounting
Thursday 18 May 2017, 10:00 - 12:00
Abacus House, Pennine Business Park, Longbow Close, Huddersfield, HD2 1GQ
20 Credits - 15 places remaining
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Introduction to Xero Cloud Accounting
Thursday 8 June 2017, 10:00 - 12:00
Abacus House, Pennine Business Park, Longbow Close, Huddersfield, HD2 1GQ
20 Credits - 15 places remaining
3 results found 
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