Value Added Tax

The taxable turnover threshold that determines whether businesses should be registered for VAT increased to £90,000 from 1 April 2024. The previous limit was £85,000. The taxable turnover threshold that determines whether businesses can apply for deregistration was also increased from £83,000 to £88,000 on the same date. It had been previously announced that the rates would be frozen until 31 March 2026. However, the Chancellor’s announcement makes the first change in 7 years to the rates and has been designed to help SMEs.

Businesses are required to register for VAT if they meet either of the following two conditions:

1. At the end of any month, the value of the taxable supplies made in the past 12 months or less has exceeded £90,000 (2023-24: £85,000); or
2. At any time, there are reasonable grounds for believing that the value of taxable supplies to be made in the next 30 days alone will exceed £90,000 (2023-24: £85,000)

Businesses with no physical presence in the UK may also have a liability to be VAT registered in the UK if they supply any goods or services to the UK (or expect to in the next 30 days).

The VAT Flat Rate scheme is open to VAT registered businesses that expect their taxable turnover in the next 12 months to be no more than £150,000, excluding VAT. The annual taxable turnover limit is the total of everything that a business sells during the year that is not VAT exempt.

Under the scheme rules, businesses pay VAT as a fixed percentage of their VAT inclusive turnover. The actual percentage used depends on the type of business. There is a special 1% discount for businesses in their first year of VAT registration.

If any of the following apply, you will not be eligible to join the scheme:

• you left the scheme in the last 12 months;
• you committed a VAT offence in the last 12 months, for example VAT evasion;
• you joined (or were eligible to join) a VAT group in the last 24 months;
• you registered for VAT as a business division in the last 24 months;
• your business is closely associated with another business;
• you’ve joined a margin or capital goods VAT scheme; or
• you are using the Cash Accounting Scheme.

Once you join the scheme you can usually continue using it provided your total business income does not exceed, or you do not expect it to exceed, £230,000 (including VAT) in a 12-month period. You must also leave the scheme if you expect your total income in the next 30 days alone to be more than £230,000 (including VAT). There are special rules if the increased turnover is temporary.

If you think that the scheme may be beneficial for your business, please get in touch and we can help you consider your options.

The VAT Cash Accounting Scheme can offer useful benefits to small businesses. Under standard VAT accounting, VAT is payable on sales whether or not the customer has paid and can lead to claims for Bad Debt Relief. By using the VAT Cash Accounting Scheme no VAT needs to be paid over to HMRC until the customer has paid for his goods / services. Using the scheme, if the customer does not pay, then the VAT is not payable to HMRC.

The scheme can also have cash flow benefits for any business that sells on credit as they only pay VAT on their sales when the customer pays. If you have cashflow concerns, this scheme could be worth a closer look.

By using the scheme, you can only recover the VAT paid on purchases once you have paid your suppliers.

A business can use the VAT Cash Accounting Scheme provided the estimated VAT taxable turnover for the next VAT year is not more than £1.35 million. There is no requirement to notify HMRC, but you must join the scheme from the beginning of a VAT accounting period.

A business can continue to use the scheme until their VAT taxable turnover exceeds £1.6 million. Businesses that stop using the scheme are also not required to notify HMRC. However, they must pay any outstanding VAT whether their customers have paid or not. Any outstanding VAT can be reported and paid over 6 months.

There are special VAT rules that allow businesses to standard rate the supply of most non-residential and commercial land and buildings (known as the option to tax). This means that subsequent supplies by the person making the option to tax will be subject to VAT at the standard rate.

The ability to convert the treatment of VAT exempt land and buildings as subject to VAT can have many benefits. The main benefit is that the person making the option to tax will be able to recover VAT on costs (subject to the usual rules) associated with the property including the purchase and refurbishment of the property. You do not need to own the land in order to exercise an option to tax.

Any subsequent sale or rental of the property will attract VAT. Where the purchaser or tenant is able recover the VAT charged this is not normally an issue. However, where the purchaser / tenant is not VAT registered or not fully taxable (such as bank) the VAT can become an additional (non-recoverable) cost. Once an option to tax has been made it can only be revoked under limited circumstances so proper consideration of the issue is important.

The VAT Flat Rate scheme allows businesses to pay VAT as a fixed percentage of their VAT inclusive turnover. The actual percentage used depends on the type of business. The scheme has been designed to simplify the way a business accounts for VAT and in so doing reduce the administration costs of complying with the VAT legislation.

The scheme is open to businesses that expect their annual taxable turnover in the next 12 months to be no more than £150,000, excluding VAT. The annual taxable turnover limit is the total of everything that a business sells during the year. It includes standard, reduced rate or zero rate sales and other supplies. It excludes the actual VAT charged, VAT exempt sales and sales of capital assets.

A limited cost trader test was introduced in April 2017. Businesses that meet the definition of a 'limited cost trader' are required to use a fixed rate of 16.5% for the scheme. Businesses defined as limited cost traders may find it more beneficial to leave the scheme and account for VAT using traditional VAT accounting.

Once you join the scheme you can continue using the scheme provided your total business income does not exceed £230,000 in a 12 month period. There are some special rules if the increased turnover is temporary. There is also a first year discount for businesses in their first year of VAT registration of 1%.

Before Brexit, the UK was unable to zero rate VAT on women’s sanitary products under EU rules and the items were subject to 5% VAT. Following the end of the transition period the UK was no longer bound by the EU VAT Directive which mandated a minimum 5% rate of VAT on all sanitary products, and the VAT charge, known as the ‘tampon tax’, was abolished with effect from 1 January 2021.

The government has now extended the VAT zero rate to period pants. Effective from 1 January 2024, women will save up to £2 on a £12 pair. Many of the UK’s largest retailers including M&S, Primark and Tesco, have committed to pass on the savings, worth 16%. This change was first announced as part of the Autumn Statement 2023 measures after 80 MPs, charities and retailers called on the government to scrap the VAT in August 2023.

The Financial Secretary to the Treasury said:

‘This is a victory for women across the UK and for the campaigners who’ve helped raise awareness of the growing importance of period pants.

It’s only right that women and girls can find more affordable options for what has become an essential and environmentally friendly product.’

Since reforming the ‘tampon tax’, the market for period underwear has expanded and they are now a mainstream choice for many women. The scrapping of the current VAT will ensure that period underwear is treated the same as traditional period products.

The taxable turnover threshold that determines whether businesses should be registered for VAT is currently £85,000. The taxable turnover threshold that determines whether businesses can apply for deregistration is £83,000.

Businesses are required to register for VAT if they meet either of the following two conditions:

1. at the end of any month, the value of the taxable supplies made in the past 12 months or less has exceeded £85,000; or
2. at any time, there are reasonable grounds for believing that the value of taxable supplies to be made in the next 30 days alone will exceed £85,000.

This means that you are required to look back over the last 12 months to see if you have a requirement to register and at the same time keep an eye on your future sales if you expect to make taxable supplies over £85,000 in the next 30 days.

The registration threshold for relevant acquisitions from other EU Member States into Northern Ireland is also £85,000.

Businesses with no physical presence in the UK may have a liability to be VAT registered in the UK if they supply any goods or services to the UK (or expect to in the next 30 days).

If using the VAT Flat Rate scheme, businesses pay VAT as a fixed percentage of their VAT inclusive turnover. The actual percentage used depends on the type of business. The scheme has been designed to simplify the way a business accounts for VAT and reduce the administration costs of complying with the VAT legislation.

The scheme is open to businesses that expect their annual taxable turnover in the next 12 months to be no more than £150,000, excluding VAT. The annual taxable turnover limit is the total of everything that a business sells during the year. It includes standard, reduced rate or zero rate sales and other supplies. It excludes the actual VAT charged, VAT exempt sales and sales of any capital assets.

As part of an annual review, it is recommended that businesses using the scheme continue to qualify to use the scheme. Businesses that have joined the scheme can continue using the scheme provided their total business income does not exceed £230,000 in a 12-month period. There are also special rules where increased turnover is temporary.

A limited cost trader test was introduced in April 2017. Businesses that meet the definition of a 'limited cost trader' are required to use a fixed rate of 16.5% for the scheme. Businesses defined as limited cost traders may find it more beneficial to leave the scheme and account for VAT using traditional VAT accounting methods.

There is also a first-year discount for businesses in their first year of VAT registration of 1%.

There are special rules to ensure that goods sent from abroad are taxed appropriately and to ensure that UK businesses supplying goods in the UK – for example by having to compete with VAT free imports – are not disadvantaged. This includes goods that are new or used and purchased online, purchased abroad and shipped to the UK and goods received as gifts.

This means that to receive your goods you may have to pay VAT, Customs Duty or Excise Duty if they were sent to:

• Great Britain (England, Wales and Scotland) from outside the UK.
• Northern Ireland from countries outside the UK and the European Union (EU).

VAT is charged on all goods (except for gifts worth £39 or less) sent from:

• outside the UK to Great Britain; and
• outside the UK and the EU to Northern Ireland.

Online marketplaces involved in facilitating the sale of goods are usually responsible for collecting and accounting for the VAT. If the VAT has not been collected, you will have to pay VAT to the delivery company either before the goods are delivered or when you collect them. If you have to pay VAT to the delivery company, it is charged on the total package value which includes the value of the goods, postage, packing, insurance and any duty owed.

There are usually no Customs Duty payable on non-excise goods worth £135 or less. There are Customs Duty payable above this level and on excise goods of any value.

HMRC’s VAT Notice 709/3 entitled 'Hotels and holiday accommodation' explains how supplies by hotels and similar establishments such as motels, guesthouses and B&Bs should be treated for VAT purposes. In addition, the notice covers the VAT treatment of holiday accommodation such as caravans and camping facilities.

Holiday accommodation includes, but is not restricted to:

• any house
• flat
• chalet
• villa
• beach hut
• tent
• caravan
• houseboat

Accommodation advertised or held out as suitable for holiday or leisure use is always treated as holiday accommodation. There may be a restriction under which occupation of the property throughout the year is not permitted, but this will not always be the case.

If you supply holiday accommodation, you may need to account for VAT at the standard rate on any charges that you make regardless of the length of occupation or description of the charges. There are a number of exceptions to this including the sale of holiday accommodation and for off-season lettings of more than 28 days.