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:
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.
Land & Property
Betting gaming & lotteries
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
Sewerage & water
Talking books for the blind and handicapped & wireless sets for the blind
Listed buildings & work thereon
Caravans & houseboats
Drugs, medicines, aids for the handicapped
Imports, exports etc
Clothing & footwear
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 renovations & alterations