Minimising the impact of VAT as a cost

Individuals and unregistered businesses

When you have some work done or buy some goods for private use it's a fact of life that you stand to pay the going rate of VAT. This is one of the following:alt

  • Exempt - no VAT

  • Zero rate - VAT charge at 0% (can be increased)

  • Reduced rate - 5%

  • Goods bought from other member states - up to 25%

  • Standard rate - 20%

    If you think you are entitled to a lower rate you would think you could ring the HMRC call centre to find out, wouldn't you?

    Not so: they can only tell the supplier, who has to quote his/her VAT registration number, and if the supplier believes it's 20% you take it or leave it.

    If there is relief available, it is worth knowing, especially if you're looking at an expensive item or job. Determining whether there is, is a matter of interpreting complex legislation that changes with every budget.

    It's 20% unless the work done is subject to a specific provision in the legislation that says otherwise. Each of the provisions has conditions attached: these usually take the form of notes to the legislation, but are sometimes written into HMRC publications.

    To help you decide whether there might be relief we have listed the available reliefs as the following tables: please note that only specific supplies within each heading qualify.

    VAT registered businesses

    In addition to the above there is the decision as to whether input tax is allowable. Getting that wrong has is a direct hit on net profit.

    If your business is partially exempt the efficiency of the method of attribution is a key feature.

    Another important consideration is cashflow. There are many ways to enhance this. Paying HMRC before your customers have paid you is not one of them.

    Exempt

    Land & Property

    Insurance

    Postal services

    Betting gaming & lotteries

    Financial services

    Education

    Health & welfare

    Burial & cremation

    Subscriptions to trade unions, professional & other public interest bodies

    Sport, sport competitions & physical education

    Works of art

    Fund raising event by charities & other qualifying bodies

    Cultural services etc

    Supplies of goods where input tax cannot be recovered

    Investment gold 

    Zero rate

    Food

    Sewerage & water

    Printed matter

    Talking books for the blind and handicapped & wireless sets for the blind

    Construction

    Listed buildings & work thereon

    International services

    Transport

    Caravans & houseboats

    Gold

    Bank notes

    Drugs, medicines, aids for the handicapped

    Imports, exports etc

    Charities etc

    Clothing & footwear 

    5%

    Domestic fuel & power

    Installation of energy saving materials

    Grant funded installation of heating equipment, security goods & gas supplies

    Women's sanitary products

    Children's car seats

    Residential conversions

    Residential renovations & alterations

    Contraceptive products