When must a taxable person or business register for VAT
If the value of it’s taxable supplies in the preceding 12 months exceeds £85k
Output VAT vs. Input VAT
Output VAT: Charged from business to customer
Input VAT: Charged by a supplier to a business
What is the standard rate of VAT?
20%
What transactions are exempt from VAT?
Supply of Land
Insurance
Postal Services
Financial Services
Education
Health Services
What is the reduced VAT rate and what is covered by it?
5%, children’s car seats and home energy bills
What goods/services have a 0 rate VAT?
Most food and children’s clothing.
Is VAT charged on disbursements?
No, the cost is passed onto the client
Conditions for an item to be a disbursement (according to HMRC)
- Firm paid supplier on the client’s behalf + acted as the client’s agent
- Client received the benefit of the goods/services paid for
- Client was responsible for paying the 3P
- Client authorised the firm to make a payment on their behalf
- Client is aware that the goods/services are from a supplier, not the firm
What does HMRC not consider to be disbursements?
- Telephone call charges
- Firm’s travel expenses while working on a matter
- Postage fees incurred sending letters to clients
- Photocopying charges
- Bank transfer fees
- Property search fees
How is VAT treated if an invoice, sent to the firm, is addressed to the client?
Agency Method: Firm pays the whole thing (including VAT) or passes it on to the client, and record the total sum in it’s records.
Note: The firm will NOT make an entry on their HMRC account.
How is VAT treated if an invoice is addressed to the firm?
Principal Method: Firm must use business money, not client money, to pay the invoice. It will then resupply the service to the client at the same price.
EXCEPTION: If the firm receives an invoice from legal counsel in the firm’s own name, it can figuratively just put the client’s name on the invoice.
