Rates of tax
The standard rate of VAT is 20%, or 1/6 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.
An unregistered business must register if it has made £77,000 of taxable supplies in the last 12
months, up to any month end, or if it expects to make £77,000 of taxable supplies in the next 30 days.
A registered business can deregister if it can satisfy HMR&C that taxable supplies in the next year
will not exceed £75,000.
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 1/6 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 HMRC 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. There is a scale rate based on the CO2 emissions rating of the car. It will be necessary to find the
exact charge on the HMRC table.
Example rates for a 3-month period (from 01/05/2012 onwards) are:
- up to 120g/km: £27.71 VAT
- 130g/km: £44.38 VAT
- 225g/km and over: £97.29 VAT
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. Most traders must file and pay electronically.