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. 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. 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. Whether you are registered for VAT yourself is irrelevant in this case. If you are not VAT registered, then you will just have to bear the VAT as part of the total costs of running your business.
  2. 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, in which case no VAT should be charged).
  3. If you are not VAT registered then you are not allowed to charge VAT on your sales invoices under any circumstances.

In some circumstances you could be better off registering for VAT voluntarily, even if your annual sales may not hit the compulsory registration limit. 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 HMRC.

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, adding on VAT will undoubtedly make your work more expensive to non-VAT registered customers who cannot recover the VAT you are obliged 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.


Similar How to articles

Related articles / resources

Related External Resources

Featured project

Black Lives Matter

Black Lives Matter statement and resources

Resources, education, donations and links for Black Lives Matter and associated projects Artquest stands in solidarity with the Black Lives Matter movement (including Black Lives Matter UK) in calling… Continue Reading Black Lives Matter statement and resources

Read more