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Businesses and charging VAT

Contents

1. How VAT works
2. VAT rates
3. What you must do when charging VAT
4. VAT-inclusive and exclusive prices
5. When not to charge VAT
6. Charging VAT to charities
7. Returned goods
8. Discounts and free gifts
9. Providing services to EU businesses

How VAT works

You can only charge VAT if your business is registered for VAT.

VAT is charged on things like:

• business sales - for example when you sell goods and services
• hiring or loaning goods to someone
• selling business assets
• commission
• items sold to staff - for example canteen meals
• business goods used for personal reasons
• ‘non-sales’ like bartering, part-exchange and gifts

These are known as ‘taxable supplies’. There are different rules for charities.

Responsibilities

VAT-registered businesses:

• must charge VAT on their goods or services
• may reclaim any VAT they’ve paid on business-related goods or services

If you’re a VAT-registered business you must report to HM Revenue and Customs (HMRC) the amount of VAT you’ve charged and the amount of VATyou’ve paid. This is done through your VAT Return which is usually due every 3 months.

You may want to appoint an agent to deal with HMRC on your behalf.

You must account for VAT on the full value of what you sell, even if you:

• receive goods or services instead of money (for example if you take something in part-exchange)
• haven’t charged any VAT to the customer - whatever price you charge is treated as including VAT

If you’ve charged more VAT than you’ve paid, you have to pay the difference to HMRC. If you’ve paid more VAT than you’ve charged, you can reclaim the difference from HMRC.

•  Next:VAT rates

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