VAT Input Tax Toolkit
This Toolkit is aimed at helping anyone who is completing a VAT return. It is designed to give an overview of the most common points; however, it is not a comprehensive statement of all input VAT risks that may arise nor cover all circumstances a business may encounter.
| Category | Heading | Detail |
|---|---|---|
| VAT - Registration & Schemes | Compulsory and Voluntary VAT Registration for Businesses | £90,000 (from April 2024). If the £90,000 threshold is not breached, taxpayers have the option to register voluntarily. Voluntary registration will benefit their business if they wish to claim back input VAT incurred on business purchases. Businesses must register if either 1) their taxable turnover for the last 12 months exceeds £90,000, or 2) they expect their annualised taxable turnover to exceed £90,000 in the next 30 days. |
| Flat Rate VAT Scheme for Sales - £150K or less | Taxpayers may opt for a flat rate VAT scheme if sales do not exceed £150k per annum. There are a range of special VAT schemes for retailers. | |
| Cash Accounting Option for Small Businesses - £1.35 million or less | Taxpayers with an annual turnover not exceeding £1.35m may opt to use cash accounting instead of accruals-based VAT reporting without notifying HMRC. They can leave the scheme at any time and they must leave if their taxable turnover exceeded £1.35M in the last 3 months and pay HMRC any outstanding VAT over 6 months (whether their customers have paid or not) | |
| Annual Accounting Scheme - £1.35 million or less | Taxpayers with annual turnover not exceeding £1.35M may opt to use VAT Annual Accounting Scheme and they pay VAT to HMRC when their customers pay them rather than when they invoice the customers. | |
| Eligibility for VAT Group Registration in the UK | Two or more companies or limited liability partnerships can register as a single taxable person or VAT group if: 1) each body has its principal or registered office in the UK, 2) they are under common control, for example, one or more company is a subsidiary of a parent company. Some scope to include non-VAT holding companies. All members share a single VAT number and return, plus joint and severally liable. | |
| Post-Brexit VAT Registration Requirements for Non-Resident Businesses | Since 31 December 2020, when the UK left the EU VAT regime, the UK no longer offers the VAT registration exemption for non-resident businesses moving stocks to a single UK customer. Instead, the goods must first be imported (requiring VAT registration) and then sold to the customer as a domestic supply with UK VAT | |
| VAT Requirements for B2C Services to EU and Non-EU Customers | Certain B2C services provided to foreign (now including EU) consumers may require local VAT registration. E.g., consulting; IP related; advertising services; financial services; staff hire | |
| No Threshold VAT Registration for Non-UK Businesses Supplying UK Goods/Services | Taxpayers must also register for VAT immediately (regardless of taxable turnover) if all of all the following are true: 1) they are based outside the UK, 2) their business is based outside the UK and 3) they supply any goods or services to the UK (or expect to do in the next 30 days). There is no registration threshold for non-UK established businesses. | |
| VAT Registration for Non-UK Digital Service Providers | Non-UK providers of digital or electronic services must UK VAT register to report UK VAT charges. The UK no longer participates in the EU's OSS single EU VAT return for e-services. | |
| Non-UK Businesses and Potential Fiscal Representative Requirements | Not required for non-UK businesses with a UK VAT registration. However, HMRC retains right to impose fiscal representative obligation where poor compliance record. | |
| Avoiding VAT Registration with Reverse Charge for Non-Residents | Generally, non-resident suppliers may use the reverse charge mechanism to avoid the obligation to register for UK VAT | |
| Live Events Ticket Sales: VAT Registration Requirements | VAT registration is required for the sale of tickets on the door at live events | |
| Post-Brexit VAT: Seller and Marketplace Responsibilities | No longer applicable following the UK's departure from the EU VAT Regime. Since 1 January 2021, all sales of imported goods to UK consumers not exceeding £135 are subject to UK VAT. Any UK or overseas seller must therefore be UK VAT registered and calculate VAT at checkout prior to sale. The same applies to overseas sellers with goods already in the UK at the time of sale: a facilitating marketplace takes over UK VAT liabilities. | |
| VAT Rates & VAT Recovery | Standard Rate | 20% VAT rate applies to most goods and services |
| VAT Reduced Rate | 5%: domestic fuel and electricity, children car seats, certain energy saving and home insulation supplies | |
| Zero VAT Rate | Exports; New dwellings; domestic power; most food; children's clothing; transport; medicines; books; newspapers; e-books and journals; sanitary products (tampons) | |
| Opting to Tax Commercial Property for VAT Recovery | The option to tax regime allows businesses to choose to charge VAT on the sale and rental of commercial property, which would otherwise be exempt. Businesses must notify HMRC within 30 days of opting to tax, either online or by submitting form VAT 1614A. This enables them to recover VAT on related expenses. Once opted, VAT must be charged on all relevant transactions. | |
| Input VAT Recovery on Pre-Registration Purchases | You can recover the input VAT incurred on goods bought within four years of registration and services paid for within six months of registration | |
| Import VAT Recovery and Postponed VAT Accounting Scheme | At the time of clearance into the UK, Import VAT can be recovered via the C79 certificate during the VAT period when the import VAT is paid. The Postponed VAT Accounting scheme is available to avoid immediate payment of import VAT. This scheme allows the taxpayer to account for import VAT on the VAT returns it relates to, without needing to pay import VAT at the ports of entry | |
| VAT Recovery: Currency and GBP Display Rules | Businesses can issue invoices in any chosen currency, but the VAT-exclusive amount and the VAT amount must be shown in GBP for the VAT to be recovered. Publicly published daily exchange rates may be used | |
| Managing VAT on Invoices with Cash Discount Offers | Supplier should indicate on original invoice VAT amount in the case a discount offer is taken up. This avoids necessity to issue credit note or fresh invoice. | |
| Claiming VAT Relief on Unpaid Invoices After Six Months | If invoice has remained unpaid after six months of the invoice and you have already accounted for the VAT on the supplies and paid it to HMRC, you can claim relief from the bad debts as long as you meet all the conditions. | |
| Applying for VAT Refunds: Requirements for Overseas Businesses | Overseas businesses (now including EU) may apply via HMRC's online portal for refunds of business-related VAT expenditure. The UK does require reciprocity agreements with foreign businesses' country of residence. Original invoices or import documents will be required for upload. | |
| Post-Brexit VAT Rules for Digital Services | Since leaving the EU VAT regime on 31 December 2020, UK businesses supplying digital services to UK consumers must charge 20% UK VAT. Digital services include e-books, music downloads, software, and online games. For supplies to non-UK consumers, the place of supply rules applies, meaning services are not subject to UK VAT but may incur VAT in the consumer's country. UK businesses must register for VAT in the consumer's country or use the Non-Union VAT MOSS scheme for EU consumers. If digital services are supplied via a third-party platform, the platform accounts for VAT. | |
| Limitations on Input VAT for Non-Staff Hospitality and Motor Vehicles in the UK | Input VAT is not claimable on UK-based non-staff hospitality (food and drink) or entertainment provided to UK-only clients; non or partial business use motor vehicle cost. 50% only of leased cars used for any private use | |
| UK E-commerce VAT Reforms: Thresholds and Collection Responsibilities | 2021 UK e-commerce VAT Rules - introduced the One Stop Shop (OSS) for simplified VAT reporting, the Import One Stop Shop (IOSS) for low-value goods, a single threshold of £8,818 for cross-border sales, and special VAT collection responsibilities for online marketplaces. | |
| Time of Supply | VAT Due Dates Based on Supply and Invoice Timing | For goods when delivered to customer or removed from supplier. For services, the time of supply. If an earlier invoice is issued or advance payment is made, this creates an earlier tax point when VAT is due. |
| Invoice Issuance Timeline for Services and Goods | Within 30 days of the supply of the service or goods. Not required for retail sales unless requested | |
| Determining the Tax Point for Continuous Supply | At the time of issuing an invoice or making a payment | |
| Timing VAT Liability: The Earliest Trigger Event | The earliest of: 12 months after sending goods; issuing an invoice; making a payment | |
| Establishing Tax Points for Reverse Charge VAT | As per goods and services rule. But must be by 31 December at latest | |
| VAT Filing, Payments & Refunds | Reporting Dates for VAT: Staggers and Frequency | Quarterly, with all taxpayers allocated into 1 of 3 'staggers' with different reporting dates. Large taxpayers or traders with regular credit balances (e.g. exporters) subject to monthly VAT returns. Voluntary annual returns for businesses with turnover not exceeding £1.35m |
| VAT Filing and Payment Deadlines | Filings are due by 7th of the second month following the reporting quarter or month. Payments should be made by the same date. Taxpayers with annual liabilities above £2.3m must also make interim payments on account at the end of the second and third month of each reporting quarter. A third, balancing payment is then due by the regular deadline. Taxpayers on annual VAT returns should file by the end of the second month following the reporting year. They must also make interim payments: nine monthly advance payments; or three quarterly payments with a balancing payment with the annual return. | |
| Digital VAT Returns for All Registered Businesses | Submission of VAT returns is done electronically via HMRC's Making Tax Digital API-based portal for all VAT-registered businesses | |
| MTD Compliance Requirements for Overseas Taxpayers | No material differences. Foreign taxpayers should comply with the UK's Making Tax Digital (MTD) for VAT rules on filing and digital records | |
| HMRC VAT Refund Process and Repayment Timelines | VAT refunds in a VAT return are automatically remitted. Repayments are usually made within 30 days of HMRC getting the VAT Return. The repayment will go direct the company's UK bank account if HMRC has the business's bank details. | |
| Compliance - Documentation | Invoice Details and Requirements | Date; unique sequential invoice number; name and address of supplier and customer; Customer VAT number for reverse charge; date of supply or advance payment if different from invoice date; Description, quantity or units etc of supply of goods or services; price per unit; taxable amount; VAT charged; rate (broken out if supplies at different rates); total; explanation if zero-rated supply; type of supply |
| Simplified VAT Invoice | £250 including VAT. Simplified VAT invoice does not have to display VAT amount separately | |
| Issuing Credit Notes: Guidelines and Timeframes | Credit notes are permitted if issued within 30 days of any misstatement or error. It should include reference to the original invoice number | |
| Record Retention Requirements | A minimum of six years. There is no obligation to retain them within the UK, but they should be readily accessible. They may be kept electronically | |
| Ensuring Compliance: Digital Links for VAT Records Under MTD | Since phase II of Making Tax Digital for VAT (April 2021) VAT records must be stored digitally with digital links between accounting, invoice or similar systems - no manual intervention is permitted. | |
| Handling VAT Adjustments: Minor and Major Error Procedures | Adjustments not exceeding £10,000 (or less than 1% of box 6 sales) may be reported in the next VAT return. For errors above this threshold, a correction letter must be sent to HMRC (VAT652 Form) | |
| VAT Adjustment Periods: Movable vs. Immovable Property | The adjustment period for movable property is five years, while for immovable property, it is ten years | |
| VAT Default Surcharge Replaced by Points-Based Penalties | Effective from 1 January 2023, the VAT default surcharge is replaced by a point-based system. For each late return (including nil payment returns), the company will receive a penalty point. Upon reaching the penalty point threshold, a £200 penalty will be imposed for having four penalty points for quarterly businesses that submit VAT Returns quarterly. | |
| VAT Compliance for UK and Northern Ireland Post-2020 | As the UK left the EU VAT regime after 31 December 2020, European Sales Listing and Intrastat are no longer required. The exception is Intrastat Arrivals, which must still be filed monthly be the 21st of the month following. This applied only for 2021. The arrivals threshold remained £1.5m. There is no requirement for dispatch reporting. Northern Ireland to EU trading still requires full ESL (goods and services) and Intrastat reporting. | |
Disclaimer Note
Please note that the guidance provided in this VAT toolkit is of a general nature and is intended for informational purposes only. It should not be taken as formal tax advice or as a substitute for professional advice. Specific circumstances may vary, and consulting with a qualified professional for personalised guidance is recommended.
