Value Added Tax (VAT) is an indirect tax charged on many goods (including works of art) and services that VAT-registered businesses provide in the UK. It is charged on goods and some services that are imported from countries outside the European Union (EU), and brought into the UK from other EU countries. If you are not registered for VAT it is illegal to add VAT to your invoices for fees or goods provided

VAT is charged when a VAT-registered business sells to either another business or to a non-business customer; when VAT-registered businesses or self employed individuals buy goods or services they can generally reclaim the VAT they've paid. There are three rates of VAT, depending on the goods or services the business provides. Registering for VAT is compulsory if the income of a business (including self employment) is over the current threshold.  Check the latest income threshold for compulsory registration on the HMRC website. More information on how to register for VAT can be found on the BusinessLink website, and HMRC has all the latest up to date information on VAT for the UK.

The information below has been written for Artquest by Anna Bulmer of Newman Peters Chartered Accountants:

It is not unusual that you may need help when it comes to dealing with issues relating to VAT because after all VAT can be regarded as complex area of indirect taxation. There are a few simple rules that may help you to determine if the operation of VAT is correct:
1. If your supplier or service provider such as a gallery or landlord of your workshop is registered for vat then s/he is obliged to charge you VAT on the goods or services s/he provides and whether you are registered for VAT yourself is irrelevant here.

If you are not VAT registered in the above scenario then you will just have to bear the VAT as part of the total costs of running your business.

2. On the other hand, if you are VAT registered then you must charge VAT on all your sales invoices irrespective of whether your customer is VAT registered or not (unless they are overseas non EC customers, then no VAT will be applicable here).

3. If you are not VAT registered then you are not allowed to charge VAT on your sales invoices under any circumstances.

Sometimes one does wonder if you will be better off if you register for VAT voluntarily even if your annual sales may not hit the compulsory registration limit (currently £73,000). One of the obvious advantage of being registered for VAT would be the possibility of recovering the VAT that you have suffered. However, this will also mean the obligation to submit VAT returns on a regular basis prescribed by the HM Revenue and Customs.

To ease of the administration burden of small VAT-registered businesses, HM Revenue and Customs have been operating accounting schemes such as annual vat accounting and flat rate VAT schemes to simplify your VAT.

These simplified VAT accounting schemes can be very attractive to smaller businesses, but you have to bear in mind that once you are VAT registered, the 20% vat add on will undoubtedly make your work more expensive to non VAT registered customers who simply cannot recover the VAT you have to charge them. It is advisable that you have professional advice before you take the plunge and opt for voluntary VAT registration.

© Anna Bulmer 2012
The article is for information only, and not for the purpose of providing accounting and taxation advice. Readers should consult an accountant for accounting and taxation advice on specific matters.

•   29 September HMRC (Her Majesty's Revenue and Customs)
  telephone

  0845 010 9000
  telephone

  Self assessment helpline: 0845 60 55 999
  website

  http://www.hmrc.gov.uk
  website

  http://www.hmrc.gov.uk/bst

  Government department (amalgamation of old Customs and Excise with Inland Revenue) responsibile both for collecting personal taxation and customs tariffs. Provides comprehensive information on its functions and your legal responsibilities in paying tax. Services for UK companies trading overseas with little or no exporting experience, from initial queries and market research to advice on finding the right contacts, export procedures and legal issues. Information on VAT and exporting of artworks, national insurance, statutory maternity leave, sick pay and all other personal tax matters. It is your responsibility to register if you are self-employed, by telephoning your nearest office or checking the site - your tax office will then send you the relevant forms and on receipt of them will issue you with a tax reference number. For enquiries or help with your tax return outside office hours, telephone 0645 000 444 or see the IR website for general guidance. Local Business Support Teams (for businesses, as opposed to freelancers/sole traders) provide help and advice to new or small businesses and employers, on topics such as payroll, employment and tax. Free workshops and one to one consultations are available.

•   29 September Digita Tax Central
  website

  http://www.digita.com/taxcentral

  Online tax advice and calculation.

•   29 September VAT Calculator
  website

  http://www.taxcentral.co.uk/taxcentral/home/vat/vatcalculator/default.asp

•   29 September Charity Commission for England and Wales
  address

  Charity Commission Direct, PO Box 1227, Liverpool L69 3UG
  telephone

  0845 3000 218
  fax

  0151 7031 555
  website

  http://www.charity-commission.gov.uk

  The Charity Commission is the independent regulator for charitable activity enabling charities to maximise their impact; ensuring compliance with legal obligations; encouraging innovation and effectiveness; championing the public interest in charity and to promote the public's trust and confidence. Their website has a wealth of information and advice for existing charities and people interested in setting up a charity.

•   29 September AIR Insurance
  contact

  AIR@a-n.co.uk
  telephone

  0191 241 8000
  email

  AIR@a-n.co.uk
  website

  http://www.a-n.co.uk/air_insurance
  website

  http://www.a-n.co.uk/artists_insurance

  The a-n Artist subscription and AIR membership provides free limited £5m public liability insurance cover tailored to visual and applied artists. The AIR Artists' Insurance Policy provides low-cost options for studio, contents, artwork, exhibition or a personalised quote against specific needs.

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• vat
• tax
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