VAT advice and services

You must register for VAT if you make taxable supplies exceeding the VAT registration threshold. Businesses that make supplies subject to VAT must monitor the value of these supplies to determine whether or not they exceed the registration threshold. The current VAT registration threshold (2024/25) is £90,000.

The business has 30 days to register for VAT if taxable turnover exceeds or is expected to exceed the registration threshold either:

• In a historic 12-month period (assessed at the end of each month)
• In a future 30-day period (assessed daily)

Businesses established outside of the UK in the EU have a VAT registration threshold of £0.

If your business makes taxable supplies below the VAT registration threshold, you may register for VAT voluntarily so you can recover VAT on your costs.

You will need to charge and collect VAT if the type of supplies you make is taxable at the standard or reduced rate of VAT and your business is VAT registered.

Supplies made in the course of business can have one of the following VAT liabilities:

• Standard rated (20%)
• Reduced rated (5%)
• Zero rated (0%)
• VAT exempt (VAT not chargeable)
• Outside the scope of VAT (VAT not applicable)

Most supplies are subject to VAT at the standard rate, but there are some common exceptions (this list is not exhaustive):

• Certain financial services are VAT exempt
• Certain real estate related services are VAT exempt
• Most food items are zero rated
• Certain education and healthcare services are VAT exempt
• Exports of goods outside the EU may be zero rated
• Supplies made for no consideration are outside the scope of VAT
• Children’s clothing is zero rated
• Domestic energy is reduced rated

Ensuring the correct VAT liability is applied to sales is imperative for compliance with the legislation.

You may be able to recover VAT on costs, depending on the types of supplies you make.

A VAT registered business can recover VAT on its costs if it makes taxable supplies or supplies outside the scope of VAT that give rise to VAT recovery. However, VAT cannot be recovered in relation to any VAT exempt or non-business activities.

If a business only makes taxable supplies – standard, reduced or zero rated supplies – then it should normally be able to recover VAT in full. If a business only makes exempt supplies, it would normally not benefit from any VAT recovery. If a business makes both taxable and exempt supplies, it will recover a proportion of the VAT it incurs by applying a partial exemption method.

Partial Exemption is complex, and it is likely there will be several options available to businesses in this position. The S&W VAT team has extensive experience agreeing partial exemption special methods (PESM) with HMRC and can help you improve your VAT recovery position.

VAT on some costs, such as business entertainment, is always irrecoverable.

A valid VAT invoice must also be held to support any VAT recovery.

The reverse charge is an obligation to self-account for VAT on certain supplies received.

The reverse charge is a mechanism under which the recipient of a supply accounts for output VAT on the supply instead of the supplier. The supply is treated as being made by and received by the customer.

The recipient of the supply will need to calculate the VAT due and report this in Box 1 of their VAT return. The VAT rate to be applied will depend on the nature of the supplies received.

The recipient can recover this VAT as input VAT in Box 4 of their VAT return, subject to the normal rules. (So, if the recipient is partially exempt, they may not be able to recover the VAT in full, for example.)

The reverse charge applies to supplies that include the following (this list is not exhaustive):

• Services received from non-UK suppliers
• Certain goods received from UK suppliers, including mobile phones and computer chips
• Certain services received from UK suppliers, including wholesale telecoms and emissions allowances

A VAT registered business must issue a valid VAT invoice to its VAT registered customers for any supplies it makes that are subject to VAT.

An invoice must contain specific information to be valid for VAT purposes:

General

• Customer name and address
• Supplier name and address
• Supplier VAT number
• Unique, sequential invoice reference number
• Invoice date and tax point date (if different)

Supply

• Description of the goods/services being supplied
• Quantity of each item provided (goods only)

Price

• Net amount per item, excluding VAT Total net amount, excluding VAT
• Total amount of VAT in GBP
• Rate of VAT charged per item
• Rate of any discount per item
• Total amount, including VAT (gross)

VAT invoices should be raised within 30 days of the time of supply.

The recipient of a supply cannot recover the VAT charged without a valid VAT invoice

A proactive and open approach to HMRC VAT audits will help provide HMRC with confidence and put you in the best position with respect to potential penalties if any errors are discovered.

HMRC VAT audits can be routine check-ups or triggered by a large repayment claim or error disclosure. VAT audits can be long and burdensome, particularly if the wrong information is provided at the outset or HMRC discover errors.

It is critical that HMRC fully understands your business and the supplies it makes at the outset to avoid any misunderstanding throughout the audit process. Details of any supplies not subject to VAT or subject to the reduced or zero rate and details of any VAT schemes used should be explained.

HMRC will also typically provide a list of documents it would like to review. If possible, the business should review this ahead of the audit and highlight any issues for HMRC at the outset. Penalties for inaccuracies can be mitigated if the business takes a proactive and open approach to the audit.

Making Tax Digital for VAT (MTDfV) is a requirement that impacts the preparation and submission of VAT returns. HMRC’s strategy is to modernise the tax system and requires businesses to prepare and file their VAT returns digitally.