VAT became part of the UK tax system as part of the free movement of goods and services requirements of the EU. It has become an increasingly large and important element of the UK tax system. It was administered by the HM Customs and Excise and their approach has resulted in a stronger proactive approach towards tax compliance and a tougher regulatory regime than is perhaps the case with other taxes.

The VAT system originated from Napoleonic days and allows VAT registered businesses to recover VAT properly incurred and so passes the cost of VAT to the end consumer who is not VAT registered.

VAT is complex. There are rules and exceptions to the legislation. However there are a few points of regular interest:

  • Businesses with a turnover greater than the VAT threshold (currently £85,000 in a rolling 12 month period) must be VAT registered. The threshold is lower for distance selling.
  • Loss making business whether temporary due to specific projects or not should consider voluntary VAT registration
  • Businesses which export goods and services should consider VAT registration
  • Transacting with businesses within the EU is complex often requiring registration in individual jurisdictions, although there are reporting simplifications
  • Normally businesses report VAT transactions based on the invoice date although there are complex rules around when a transaction needs to be reported and again alternatives to consider
  • VAT is levied not on a company but on a qualifying transaction. Location and transaction control are key elements in determining whether transactions qualify and managing compliance obligations.
  • VAT and property is very complex. Residential property is exempt (although under the flat rate scheme could be considered not exempt). Commercial property is typically exempt but there is a semi-permanent option to waive the exemption (often referred to as an opt to tax)
  • Business transfers may be outwith the scope of VAT if criteria are met
  • Complex businesses with multiple income categories may find that there are unable to recover VAT without specialist advice
  • There are special VAT rules covering different situations such as travel agents, second hand goods, approved warehouses centres, property and digital services.

With the complexity and onerous penalty regime, proper advice is important.

At Johnsons we aim to ensure that all such risks are avoided and your business is structured to optimise your VAT position. We have a team of experienced professionals who can offer guidance on meeting the VAT requirements and provide support at all appropriate stages of the development of your business.

Require more information?

If you would like more information or would like to speak to us direct then call us on 020 8567 3451. Or if you would prefer, ask us a question online.

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