Advertisement

It is the person, not the business, who is registered for Vat. Each registration covers all the business activities of the registered person. For VAT purposes, a company is treated as a person. There are a number of reasons why you might not have to register. These include:

  • ? your sales (strictly, the amount of your taxable supplies, see overleaf) are too low, but you might with still to register for VAT purposes and charge it on your sales
  • ? your business operates outside the VAT area
  • ? you make only exempt supplies
  • ? you carry out non-business activities (but you would still charge VAT on what counts as your business activities)

If you fail to register when you should do so – and you have thirty days’ grace – Customs and Excise can impose financial penalties. The penalty is 5 percent of the tax due if registration is more than nine but not more than eighteen months overdue and 15 percent if registration is more than eighteen months late.

YOUR LEVEL OF SALES

You must register your business for VAT if your sales are above a certain limit (strictly, the limit is for the value of your taxable supplies, see below, rather than sales). The limit increases each year in line with the rate of inflation. From 25 April 2002, you must register if:

? your sales in the previous year were more than ?55,000 (but not if you can show that your sales will be less than this in the next year)

? your sales in the next thirty days are likely to be more than ?55,000

Should your sales fall below the limit above, you can ask to have your registration cancelled. You would have to establish that your sales, excluding VAT, will be ?53,000 or less for the next twelve months.

THE AREA FOR VAT

VAT applies to England, Scotland, Wales, Northern Ireland and the Isle of Man. It does not include the Channel Islands. If you have customers or suppliers there, the goods you buy or sell will be treated as imports or exports.

WHAT ARE TAXABLE SUPPLIES AND WHAT ARE EXEMPT?

Broadly speaking, if you supply goods and services in your business (including anything you take for your own use or sell to your staff), these will be taxable, unless the government has specifically laid down that they are not. If they are not taxable, they are called exempt.

If all the goods or services which you supply are exempt, you cannot normally be registered for VAT. What this means for you is that you cannot claim back the VAT on any of the things you have bought for your business.

On the other hand, with a business composed of some taxable and some exempt supplies, you will still have to comply with the registration limits for the value of your taxable supplies. You will be able to claim back the VAT you have paid for the whole of your business if the value of your exempt input tax (that is, input tax relating wholly or partly to your exempt supplies) is not more than ?625 per month on average and comes to no more than half you total input tax.

The main items which are exempt as far as VAT is concerned are broadly speaking:

? most sales, leases and lettings of land and buildings (but not lettings of garages, parking spaces or hotel and holiday accommodation). Landlords of non-domestic buildings will be able to charge VAT on rent if they choose to do so

? providing credit

? insurance

? certain education and training

? most health care

? postal services

? most betting, gaming and lotteries

? certain supplies by undertakers

? membership benefits provided by trade unions and professional bodies.

WHAT IS BUSINESS AND WHAT IS NON-BUSINESS?

As far as the VAT system is concerned, business is supplying goods or services to someone else in return for something which could be regarded as payment; it doe not need to be money. You must be supplying the goods on a continuing basis to be a business activity.

If you are carrying out only non-business activities, you cannot be registered for VAT; if you have some non-business activities, the VAT you can reclaim is reduced.

WHEN IS YOUR REGISTRATION CANCELLED?

Apart from you requesting it to be cancelled, your registration will be cancelled if:

? the business is closed down

? the business is sold

? you take a partner or become a sole trader rather than a partner

? as a sole trader or partner, you change the business into a company and vice versa.

Advertisement