Compact Services

  2007 Budget - Value Added Tax

Rates of tax

The standard rate of VAT remains 17.5%, or 7/47 of the consideration received for making a supply.

A lower rate of 5% (or 1/21 of the gross receipt) applies to some supplies such as domestic fuel and power, installation of energy saving materials in houses, and some conversions of residential property.

A zero rate applies to a range of supplies including most food, books, new houses, and children's clothes.

Certain other supplies are exempt, which means no tax is charged to the customer, but the supplier cannot recover VAT on costs. These include many land-related supplies, insurance, finance, education, health and welfare, and non-profit sports clubs.

Thresholds

An unregistered business must register if it has made £64,000 of taxable supplies in the last 12 months, up to any month end, or if it expects to make £64,000 of taxable supplies in the next 30 days.

A registered business can deregister if it can satisfy Customs that taxable supplies in the next year will not exceed £62,000.

Small businesses with taxable turnover of up to £150,000 can opt to use the 'flat-rate scheme'. A single rate, which varies with the type of business, is applied to all receipts, and no VAT is claimed on costs. The single rate is lower than 7/47 to compensate for lost input tax.

Small businesses with taxable turnover of up to £1.35m can use the cash accounting scheme (only paying VAT to Customs when customers have paid). The annual accounting scheme (filing a single VAT return each year instead of one every three months) is available with turnover up to £1.35m..

Scale charge for private use of fuel paid for by business

Where a business buys car fuel and allows it to be used for private motoring, it has to account for output tax on the supply. The system of scale rates is changing with effect from 1 May 2007, and the new rates are more complicated than the old. It will be necessary to find out the CO2 emissions rating of the car and find the exact charge on the HMRC table.

Example rates for a 3-month period are:

  • up to 140g/km: 27.11 VAT (was 40.66 for engine size up to 1400cc)
  • over 240g/km: 63.45 VAT (was 75.66 for engine size over 2000cc)

Returns and payments

Most VAT returns are prepared for three-month periods, and they are due (with any payment) by the end of the next month.