Notice

VAT Notice 700: the VAT guide

Updated 8 November 2016

Foreword

This notice cancels and replaces Notice 700 (April 2015). Details of any changes to the previous version can be found in paragraph 1.2 of this notice.

1. Introduction and other sources of information

1.1 What this notice is about

This notice is the main reference guide to VAT.

It provides:

  • a guide to all the main VAT rules and procedures
  • help with the problems faced by business
  • references to more specialised publications

Not all of the information here will apply to your business - so don’t try to read it all the way through. There is an index at the end and this will help you find the information you need by referring you to a particular section or paragraph in this guide or to one of HMRC’s other, more specialised publications.

This section of the notice provides information about a range of sources of further information and help, including the VAT: general enquiries helpline.

1.2 Changes from the previous edition

The technical content of this notice is largely unchanged from April 2015 edition, although there are a number of minor amendments, updates and improvements. The main amendments concern clarification of the rules for deduction of VAT incurred before registration.

Paragraph Change
10.3 Deleted line stating that VAT incurred on goods obtained before registration can’t normally be reclaimed.
11.2 Amended to clarify the rules for deduction of VAT incurred on goods obtained before registration.
11.3 Amended to improve readability and consistency of format with paragraph 11.2.
11.4 Minor format changes.

1.3 Other helpful notices

1.3.1 Introductory information

You may find it helpful to read these simple introductory publications before you use this guide:

1.3.2 Retail schemes

If you make retail sales or provide services to the public, there are a number of special retail schemes which you may use to work out the VAT on your supplies.

You should read VAT Notice 727: retail schemes and the associated notices which will tell you more about the individual schemes. The schemes are designed to suit different types of business, and this notice will help you decide.

1.3.3 Business within the EU

If you are involved in either buying or selling goods within the EU you should read VAT Notice 725: the single market.

If you are a business that supplies digital services (broadcasting, telecommunication and e-services) to consumers (private individuals), you should see section 4.8.4 to read about the changes to the VAT place of supply of services rules from 1 January 2015.

1.4 How to get free information and help

Some features of VAT arise less frequently or only affect certain types of business. You will find detailed guidance on these in other, more specialised notices.

A full list of VAT publications is available in Notice 999: catalogue of publications.

You can get all publications listed, free of charge, from the VAT: general enquiries helpline.

If you are registered for VAT you will receive a newsletter called VAT Notes with your VAT Return. It is usually issued quarterly with VAT returns and provides brief topical notes about VAT and details of new and revised VAT publications.

If you cannot find the answer to your query in these publications, you can contact the VAT: general enquiries helpline.

1.5 The VAT helpline

The VAT: general enquiries helpline deals with all general phone enquiries from both businesses and the public.

1.5.1 Contact details

You can find the helpline contact details online.

1.5.2 What the VAT helpline deals with

The service is for all general enquiries about taxes and duties, including VAT, Excise, Customs, Insurance Premium Tax, Landfill Tax, Aggregates Tax, Air Passenger Duty, Climate Change Levy and Mineral Oils.

For example, you can call the service if you have a question about:

  • HM Revenue and Customs’ (HMRC) rules and procedures
  • rates of duty or tax chargeable on particular goods
  • requests for publications, such as forms or notices
  • requests for duplicate returns

Large businesses assured by Large Trader Teams can still contact their dedicated team for information and advice.

1.5.3 What the VAT helpline does not deal with

The service cannot deal with any questions about case specific transactions.

For example:

If you have a question about: then you should call:
how to clear an existing debt your regional Debt Management Unit.
the progress of a VAT registration or the amendment or cancellation of a VAT registration the VAT Registration Service. See section 26 for guidance on changes in circumstances that may require cancellation or amendment of a VAT registration.
the progress of a specific import entry Customs at the port or airport of importation.
the progress of a request to use one of HMRC’s schemes the office you sent the application to.
matters arising from a visit by one of HMRC’s officers the officer direct.

1.6 Getting advice on VAT matters

To help HMRC to give you the best service, please always give the full facts.

Most enquiries can be dealt with by a phone call to the VAT: general enquiries helpline. However, for your own protection, you should put any detailed questions in writing.

If you wish to write or email with a VAT enquiry you can use the post address or email form.

Tax accountancy profession

You can also get help and advice about how to keep your VAT affairs in order from members of the tax accountancy profession. However, there is no requirement to employ an accountant and if you choose to do so, responsibility for the accuracy of your VAT affairs remains with you, the taxable person.

1.7 Learning about VAT

After registering for VAT, there are several options for businesses wanting to find out more about how VAT works. They can choose from:

HMRC is committed to providing newly registered businesses with the education they need in ways they find convenient, accessible and understandable.

To find out more about HMRC VAT educational opportunities, contact the VAT: general enquiries helpline.

1.8 Updates

From time to time, the VAT rules change or are rewritten to make the guidance clearer. This is done through a revised edition of the publication or an update for the existing notice. All revised editions and updates are published on the VAT pages and in the next available editions of VAT Notes. A full list of VAT publications is available in Notice 999: catalogue of publications.

It is important that you keep yourself up to date by noting these changes. Otherwise you may find that you are not accounting for VAT properly.

2. Administration of VAT

2.1 What this section is about

This section explains:

  • the purpose of visits that you will receive from VAT officers and what you can expect
  • the HMRC approach to tax avoidance
  • the law
  • what HMRC can do in cases of misunderstanding, misdirection or departmental error
  • your rights as a taxpayer and how to complain

Other administrative aspects are dealt with elsewhere in the notice:

Guidance on: is in:
registration section 6 and section 26
VAT returns and payment of VAT section 20 and section 21
penalties and interest charges section 27
appeals section 28

2.2 Visits by VAT officers

From time to time you will be visited at your principal place of business by an officer from your VAT office. The officer will examine your business records, methods and premises and give you guidance. The reason for this is to make sure that the correct tax is accounted for at the right time, so that you to pay no more and no less than is due.

2.2.1 When you may be visited

This will depend on the size and complexity of your business and your past compliance with legislation. Businesses which send in late or incorrect declarations and payments are visited more often. It is therefore in your interest to make sure that your declarations are correct from the outset.

Before the visit HMRC will agree a mutually convenient appointment date and time. On occasion a VAT officer will call without an appointment. One reason for this may be to see the day to day operation of the business.

2.2.2 Visit length

Officers aim to carry out their duties with as little inconvenience to you as possible. For a small business, a visit may only take a few hours - for a large or complex business it can last 2 or more days.

2.2.3 What happens during a visit

During the visit the VAT officer will:

  • discuss with you the various aspects of your business
  • give an indication of the length of the visit
  • examine the records of the business
  • advise you of overpayments as well as underpayments

At the end of the visit the officer will:

  • review the work performed
  • discuss any concerns arising
  • agree what is to be done in the future

Where an error is found, the officer will:

  • describe how the adjustment will be made
  • agree the adjustment whenever possible
  • tell you that you have the right to a review of their decision by an officer not previously involved in the matter or to appeal to an independent tribunal - if you opt for a review you can still appeal to the tribunal after the review has finished if you are unhappy with the outcome

There are a number of things that you can do to help the visit go smoothly. These include:

  • advising HMRC early of the reasons for any significant changes in the tax or duties declared by you - you should do this by writing to the VAT Written Enquiries Team
  • keeping your records and payments up to date
  • providing HMRC with any information and explanations requested
  • asking if you are unsure of any matter connected with the tax - HMRC will not normally have time to look at all aspects of your records and business, so you cannot assume that you are accounting for the tax or duty correctly on everything just because no errors are found
  • helping HMRC to understand your business and records
  • replying to enquiries within the specified time
  • quoting your VAT number when you contact HMRC

2.3 Tax avoidance

Tax avoidance is the use of contrived arrangements or structures to achieve a tax advantage - an increase in tax recovery, a reduction in the tax due or a tax deferral - contrary to the purpose and spirit of the legislation. Tax avoidance puts at risk government revenues. It can also give a business an unfair advantage over others and threaten tax simplification measures. HMRC has to take action to counter this and will continue to do so. That action includes the use of litigation, or the introduction of new legislation.

2.4 VAT law

VAT law in the EU is governed by various Directives, notably the Principal VAT Directive (2006).

The Directives are given effect in the UK mainly by the Value Added Tax Act 1994 as amended by subsequent Finance Acts. But there are many detailed rules in Statutory Instruments. These are either orders made by the Treasury or regulations made by HMRC. Copies of the Act and of Statutory Instruments are available from Stationery Office bookshops.

Generally speaking, this notice and the other VAT notices explain how HMRC interprets the VAT law. However, sometimes the law says that the detailed rules on a particular matter will be set out in a notice or leaflet published by HMRC rather than in a Statutory Instrument. When this is done, that part of the notice or leaflet has legal force, and that fact will be clearly shown at the relevant point in the publication.

2.5 When you can rely on advice from HMRC

HMRC aims to provide information and advice that will give certainty to customers concerning the tax consequences of their transactions, their obligations, liabilities and entitlements. The general principle, therefore, is that you should be able to rely on any information or advice HMRC provides, because it is correct.

There may be a small number of cases where HMRC provides information or advice that is incorrect in law. Where this happens, HMRC will be bound by such advice provided that it is clear, unequivocal and explicit, and that you can demonstrate that:

  • you reasonably relied on the advice
  • where appropriate, you made a full disclosure of all the relevant facts
  • the application of the law would result in your financial detriment

Where HMRC has given incorrect information or advice, its primary duty is to collect the correct amount of tax as required by the law, and therefore there will be some circumstances where HMRC will not be bound by the advice given.

Where HMRC provides you with erroneous advice that is binding, and subsequently notifies you that it is incorrect, you will only be required to start accounting for tax on the correct basis from the date of that notification.

2.6 Extra-statutory concessions

In certain circumstances where remission or repayment of VAT is not provided for by law, HMRC may allow relief on an extra-statutory basis. The use of a concession may be restricted, for example, if it is used for the purpose of tax avoidance (see paragraph 2.3).

You will find more about this and a list of these concessions in VAT Notice 48: extra-statutory concessions.

2.7 Interest in cases of departmental error

You can claim interest where, as a result of an error on HMRC’s part you:

  • have paid too much VAT
  • have underclaimed VAT
  • were prevented from recovering VAT at the proper time

You can claim for the period of time during which you have not been able to use your money.

You should make your claim in writing to the VAT Written Enquiries Team, who will consider each case on its merits.

2.8 Your rights as a taxpayer

As a taxpayer, you have important rights and entitlements.

It includes standards of service which specifically relate to HMRC’s administration of:

  • VAT
  • excise and inland customs
  • the import and export of freight

Your cooperation in all aspects of the tax collection process is appreciated.

Under the Open Government Code of Practice on Access to Government Information you are entitled to see certain information held by HMRC. You can make a freedom of information request(https://www.gov.uk/make-a-freedom-of-information-request) to access this information.

2.9 Complaints

Although HMRC’s aim is always to provide a high standard of service, sometimes things may go wrong. If they do, there are procedures for handling complaints fairly and speedily.

Whenever possible, you should try to resolve your complaint on the spot with the VAT officer, but if you are unable to do so you should follow HMRC’s complaints procedure.

3. General explanation of VAT: introduction and liability

3.1 Introduction to VAT

The basic principles of VAT are covered in:

  • section 3 - introduction to VAT and information about VAT liability and rates of tax
  • section 4 - how VAT works and some of the mechanics of VAT
  • section 5 - the basic rules on imports, exports, acquisitions and intra-EU supplies
  • section 6 - registration and when you might need to register

3.2 What is VAT

VAT is a tax on consumer expenditure. It is collected on business transactions, imports and acquisitions.

Most business transactions involve supplies of goods or services. VAT is payable if they are:

  • supplies made in the UK or the Isle of Man
  • by a taxable person
  • in the course or furtherance of business
  • are not specifically exempted or zero rated

Supplies which are made in the UK or the Isle of Man and which are not exempt are called taxable supplies.

A taxable person is an individual, firm, company and so on who is, or is required to be, registered for VAT. A person who makes taxable supplies above certain value limits is required to be registered.

A person who makes taxable supplies below these limits is entitled to be registered in the UK on a voluntary basis if they wish, in order, for example, to recover VAT incurred in relation to these taxable supplies.

In addition, a person who is not registered for VAT in the UK but acquires goods from another EU member state, or makes distance sales in the UK, above certain value limits may be required to register for VAT in the UK (and such persons may register voluntarily if their acquisitions or distance sales are below these limits).

There is more about these matters in section 6.

Supplies are outside the scope of the tax if they are:

  • made by someone who is not a taxable person
  • made outside the UK and the Isle of Man (but see paragraph 4.8.3 for special place of supply rules for certain international services)
  • not made in the course or furtherance of business

3.3 VAT rates

There are 3 rates of VAT:

  • a standard rate, currently 20%
  • a reduced rate, currently 5%
  • a zero rate

3.3.1 Historic VAT rates in the UK

VAT was introduced into the UK on 1 April 1973. The zero rate has existed throughout that time. There have been changes to the standard and reduced rates, plus a briefly introduced higher rate, and these are:

Standard rate  
1 April 1973 10%
29 July 1974 8%
18 June 1979 15% (covers all previously standard and higher rated supplies)
1 April 1991 17.5%
1 December 2008 15%
1 January 2010 17.5%
4 January 2011 20%
Reduced rate  
1 April 1994 8% (covers supplies of fuel and power)
1 September 1997 5% (extended to cover other supplies, with later other subsequent extensions)
Higher rate  
18 November 1976 25% (covers petrol but not Derv)
1 May 1975 Extended (covers domestic electrical appliances, radios, TVs, hi-fis, pleasure boats, aircraft, towing caravans, photographic equipment, furs and jewellery)
12 April 1976 12.5%
18 June 1979 Abolished (standard rate increased from 8% to 15% to cover all previously standard and higher rated goods)

3.4 Reduced-rated supplies

Some supplies of goods and services are charged at the reduced rate, which is currently 5%. These are supplies which it is felt should not attract the full rate of VAT.

Reduced-rated supplies are taxable, and include the right of the person making the supply to recover the VAT on their own business expenditure (subject to certain restrictions - see paragraph 4.6).

For a full list of reduced-rated supplies, see section 29.

3.5 Zero-rated supplies

VAT is not payable on zero-rated supplies, and an invoice for a zero-rated supply will not constitute a VAT invoice (paragraph 15.10 explains why this is important for tax point purposes).

However, zero-rated supplies are treated as taxable supplies in all other respects, including the right of the person making the supply to recover the VAT on their own business expenditure (subject to certain restrictions - see paragraph 4.6).

For a full list of zero-rated supplies, see section 29.

3.6 Exempt supplies

Some supplies are exempt from VAT, which means that no tax is payable - but, equally, the person making the supply cannot normally recover any of the VAT on their own expenses.

However, it is possible to choose to standard rate some supplies of property which would otherwise be exempt, by opting to tax, whereby the supplies you make of an interest in land and/or buildings will, in most cases, become taxable (see VAT Notice 742A: opting to tax land and buildings).

For a full list of exempt supplies, see section 29.

3.7 Further information on liability and rates of VAT

Section 29 tells you about the areas of business where some supplies may be exempt, reduced rated or zero rated. It also lists the notices which tell you more about this.

If you have read section 29 and you think that any of your supplies might be zero rated, reduced rated or exempt, you should read the appropriate notice.

If the rate of tax or the liability of something you supply changes, you should read section 30.

4. General explanation of VAT: the basic mechanism for VAT

4.1 How VAT works

If you make taxable supplies (standard rated, reduced rated or zero rated), you have to account to HMRC for the VAT due. This is your output tax.

You will normally charge the VAT to your customers. If your customers are registered for VAT and the supplies are for use in their business, the VAT is their input tax. In the same way, VAT charged to you on your business purchases is your input tax.

As a registered person, you can reclaim from HMRC as much of the VAT on your purchases and imports, as relates to the standard-rated, reduced-rated and zero-rated supplies you make. In principle, you cannot reclaim VAT which relates to any non-business activity or to any exempt supplies you make.

4.2 How to account for VAT on your supplies

At predetermined intervals you pay HMRC the excess of your output tax over the VAT you can reclaim as input tax. However, if the input tax you can reclaim is more than your output tax, you can reclaim the difference.

4.3 VAT relief if a customer has not paid you

If you make taxable supplies of goods or services to a customer for which you are not paid, you may be able to reclaim relief from VAT on the bad debts. You can find out more about this in VAT Notice 700/18: relief from VAT on bad debts.

4.4 Supplies of goods

You supply goods if you pass the exclusive ownership of moveable items to another person.

You also supply goods if you:

You do not make a supply if you provide goods (such as overalls or tools) to employees solely for the purpose of their employment and make no charge.

4.5 Supplies of services

You supply services if you do something, other than supplying goods, for a consideration. A consideration is any form of payment in money or in kind, including anything which is itself a supply (see paragraph 7.2).

You also supply services if you:

  • lend goods to someone for use outside your business
  • hire goods to someone
  • produce goods from someone else’s materials
  • use goods owned by the business outside the business
  • agree, for a consideration, to refrain from doing something
  • agree to grant, assign or surrender a right for a consideration

If you supply services, you should read VAT Notice 741A: place of supply of services.

4.6 Business and non-business

4.6.1 Introduction

It is very important to understand the difference between business and non-business activities:

  • you must account for VAT on all the taxable supplies you make by way of business, and you can treat as input tax VAT charged on goods and services which you get for your business (see section 10)
  • if you also carry out non-business activities, it could affect the amount of VAT you can treat as input tax - VAT charged on goods and services which you do not get for your business is not input tax and you cannot reclaim it

4.6.2 Meaning of the term ‘business’

In VAT terms, business means any continuing activity which is mainly concerned with making supplies to other persons for a consideration (see paragraph 4.5). The activity must have a degree of frequency and scale and be continued over a period of time. Isolated transactions are not normally business for VAT purposes.

It includes:

  • the way in which self-employed people carrying on any trade, vocation or profession, as well as companies, earn an income
  • the provision of membership benefits by clubs, associations and similar bodies in return for a subscription or other consideration
  • admission to premises for a charge

It may also include:

  • the activities of clubs and other recreational bodies
  • some of the activities of charities and non-profit making bodies

However, even if your activities have some or all the characteristics of a business, they are not business if they are essentially a recreation or hobby and the making of taxable supplies is only incidental to this.

4.6.3 Non-business

If you have any non-business activities, you will not be able to reclaim all the VAT you are charged on your purchases. This is because the VAT charged on goods and services used for non-business purposes is not input tax and cannot be reclaimed.

4.6.4 Examples of non-business activities

Purely private or personal activities are, of course, non-business. Many charities, philanthropic and voluntary bodies and other non-profit making organisations have non-business activities. For example, these may all be non-business activities:

  • providing free services or information
  • maintaining museums, parks or historic sites (unless there is an admission or other charge)
  • publicising religious or political views

An activity which is carried out mainly as a hobby, such as stamp collecting, is not a business. However, if you start to sell items you collect, or have made, on a regular and continuing basis, then, under the rules outlined above, your hobby could become a business for VAT purposes.

If you want to know whether this affects you, call or write to HMRC.

4.6.5 Some particular situations

(a) Grants or donations

Non-business activities are often financed largely from grants or donations. As long as those making the grants or donations receive no direct benefit in return, this income is not the consideration for any supply and is outside the scope of VAT.

(b) Activities are mainly non-business

A body whose main activities are non-business may still have some activities which count as business for VAT purposes, such as selling goods to raise funds, running a staff canteen or charging admission fees. If the taxable turnover from these activities is over the registration limits, the body should be registered for VAT.

(c) Charities

VAT Notice 701/1: charities gives more information on non-business activities for such bodies.

(d) Local authorities and similar bodies

Special rules apply if you are a body covered by the Value Added Tax Act 1994.

4.6.6 What if I am involved in both business and non-business activity?

If you are charged VAT on goods and services which you get for: then you:
your business can treat this as input tax (see section 10)
your non-business activity cannot treat this as input tax (see paragraph 4.6.3 above)
both business and non-business activity must apportion the VAT (see section 32)

4.7 The UK, Isle of Man and the Channel Islands

4.7.1 UK

The UK is made up of Great Britain, Northern Ireland and the territorial waters. It does not include the Channel Islands or the Isle of Man.

However, for VAT purposes the Isle of Man is treated as part of the UK. If you have customers or suppliers in the Isle of Man, the VAT rules are the same as if they were in the UK. Goods sent from the UK to the Isle of Man or vice versa do not count as imports or exports for VAT purposes.

4.7.2 Isle of Man

VAT is chargeable in the Isle of Man under Manx law which generally parallels UK legislation. References in this notice to the UK also apply to the Isle of Man unless the text indicates otherwise.

4.7.3 Channel Islands

There is no VAT in the Channel Islands. Goods passing between the Channel Islands and the UK or the Isle of Man are imported or exported for VAT purposes. See section 5.

4.8 Place of supply

4.8.1 Introduction

To be within the UK VAT system a supply must be made in the UK. Supplies made outside the UK are outside the scope of UK VAT. Separate rules apply for working out the place of supply for goods and services. These are set out below.

4.8.2 Goods

If your supply involves: then your supply takes place:
goods located in the UK when supplied in the UK
goods located outside the UK when supplied outside the UK
goods you install or assemble in the UK

   - see VAT Notice 725: the single market for further information
in the UK
goods you install or assemble outside the UK outside the UK
goods you supply from the UK to another EU member state under distance selling arrangements, where the value of your supplies in a calendar year is below the distance selling threshold set by that member state

   - see section 6 of VAT Notice 700/1: should I be registered for VAT? for more information on distance selling
in the UK
goods you supply from the UK to another EU member state under distance selling arrangements, where the value of your supplies in a calendar year is above the distance selling threshold set by that member state

   - see section 6 of VAT Notice 700/1: should I be registered for VAT? for more information on distance selling
in the EU member state to which the goods were delivered
the importation of goods by you, or under your directions, from outside the EU in the UK
the importation of goods from outside the EU by your customer outside the UK
the removal of goods from the UK for export outside the EU or to another EU member state outside the distance selling arrangements

   - see section 6 of VAT Notice 700/1: should I be registered for VAT? for more information on distance selling
in the UK
the removal of goods to the UK from another EU member state, outside the distance selling arrangements

   - see section 6 of VAT Notice 700/1: should I be registered for VAT? for more information on distance selling
in the member state from which the goods were removed

Note: Where supplies take place in the UK, the supplier may be liable to register here and account for VAT on their supplies. No UK VAT would be chargeable on supplies that take place outside the UK.

If you are unsure about the place of supply of goods call the VAT: general enquiries helpline or write to the VAT Written Enquiries Team for further advice.

4.8.3 Services

There are 2 general rules for determining the place of supply of services: one for business to business (B2B) and one for business to consumer (B2C).

The B2B general rule for supplies of services is that the supply is made where the customer belongs.

The B2C general rule for supplies of services is that the supply is made where the supplier belongs.

You belong where you have a business or some other fixed establishment, including a branch or agency. If you have no such establishment, you belong where you usually live. In the case of a company this is where it is legally constituted. If you have establishments in more than one country, the supply takes place at the location of the establishment most directly concerned with the supply.

However, there are also special place of supply rules for certain services, and these are:

  • services relating to land and property
  • services of the hiring of a means of transport
  • services involving physical performance
  • restaurant and catering services
  • passenger transport
  • B2C freight transport services
  • B2C digital services (broadcasting, telecommunications and e-services) from 1 January 2015
  • certain intermediary services
  • certain B2C supplies of services where the customer belongs outside the EU

If you buy from a third party travel, hotel, holiday and certain other supplies of a kind enjoyed by travelers, and resell them as principal, or as an agent acting in its own name, there are different place of supply rules. See VAT Notice 709/5: tour operators margin scheme.

You will find more information about this subject in VAT Notice 741A: place of supply of services.

4.8.4 Supplying digital services to consumers and the VAT Mini One Stop Shop (VAT MOSS)

The 1 January 2015 changes to the legislation mean that the place of taxation of digital services (broadcasting, telecommunications and e-services) is determined by the location of the customer who receives the service, rather than the location of the supplier of the services. This affects the EU VAT place of supply of services rules involving business to consumer supplies of these digital services. A consumer means a private individual, not another business.

A new optional online service, the VAT MOSS has been introduced so if you supply digital services, you don’t have to register in every EU member state where you have consumers. Using VAT MOSS will mean you can account for the VAT due on all the B2C digital service supplies you make to EU consumers by making a single calendar quarterly VAT MOSS return and payment.

You can find more information about the changes to VAT on digital services in the EU on GOV.UK.

If you use the VAT MOSS online service and do not keep up to date with your returns and payments, you will be excluded from using the service if you receive a reminder from your Member State of Identification (MSI) for 3 consecutive quarters; and do not pay the full amount of VAT within 10 days of each of these reminders being issued, unless the unpaid amounts are less than 100 euro for each quarter.

5. General explanation of VAT: imports, exports, acquisitions and intra-EU supplies

5.1 Introduction

VAT is not only a tax on supplies. It is also a tax on the importation or acquisition of most goods - and of some services - received from outside the UK.

5.2 Imported goods

When goods are imported into the UK from outside the EU, VAT is normally due at the same rate as on a supply of those goods in the UK.

VAT must be paid when you import the goods or, if you or your agent is approved for duty deferment, you can defer payment with any duty.

If you import goods into the UK from outside the EU, you should read VAT Notice 702: imports and VAT Notice 101: deferring duty, VAT and other charges.

5.3 Warehoused goods

Similar arrangements to those above apply if you remove goods from an approved warehouse.

You should read:

5.4 Services received from outside the UK

If you’re the customer and you receive from outside the UK any services subject to the B2B general rule for the place of supply of services, the services are treated as if you supply them, and you must account for any output tax due on them. You can recover the VAT on these services as input tax, subject to the normal rules.

If you think that you might receive services of this kind from outside the UK, please read VAT Notice 741A: place of supply of services.

If you receive from outside the UK any B2B general rule services, their value counts towards your taxable turnover. This applies even if the only supplies you make in the UK are exempt.

You may be required to account for VAT under the ‘reverse charge’ procedure if you:

  • are registered for VAT in the UK
  • receive any service - the place of supply of which is the UK (other than B2B general rule services) - from a person who belongs outside the UK

You can find more information in VAT Notice 741: a place of supply of services.

5.4.1 Free zones

VAT is not due on the importation of goods into a free zone.

Import VAT is due only on goods removed from a free zone into the rest of the UK and on goods used or consumed within a zone.

If goods: then import VAT is:
of UK origin which have been in a free zone are removed in an unaltered state, for home use not due
manufactured in a zone are removed into the UK for use in the owner’s business, as opposed to being sold or disposed of due only on the value of any imported elements of the goods

Supplies of goods and services to, from and within a free zone are taxable in the normal way. If you need more information you should read VAT Notice 702/9: VAT - import Customs Procedures.

5.5 Exported goods

If you export goods to a customer outside the EU, your supply is normally zero rated provided that you meet the appropriate conditions.

There are a number of notices which deal with exports. You will find out more about these, and the conditions which you must meet to zero rate your supplies, in VAT Notice 703: exports and removals of goods from the UK.

5.6 Exported services

Some supplies of services to overseas customers are zero-rated, but many are standard-rated. You will find more about this in section 29.

5.7 Intra-EU supplies of goods

If you supply goods to a VAT-registered customer in another EU member state and the goods are removed from the UK to another EU country, your supply may be zero rated provided you meet the appropriate conditions.

You will find out more about the VAT treatment of supplies of goods within the single market, and the conditions you must meet to zero rate your supplies, in VAT Notice 725: the single market.

5.7.1 EC Sales List

UK traders registered for VAT who makes supplies of goods or services to traders registered for VAT in the other member states are required to send in lists of their EC supplies. The EC Sales Lists are used to control the taxation on supplies within the EC.

You will find more details about EC Sales Lists in VAT Notice 725: the Single Market.

5.7.2 Intrastat

You should show the value of the supply to or acquisition of goods from other EC member states in boxes 8 or 9 respectively of the VAT return.

Depending on the level of your trade with other EC member states, you may be required to submit more detailed statistical declarations. These are known as Intrastat Supplementary Declarations.

You will find a more detailed explanation of the Intrastat system in Notice 60: Intrastat general guide.

5.7.3 Acquisitions

If you purchase goods from a VAT-registered business in another EC country and the goods are removed to the UK, you may be required to account for VAT in the UK on the acquisition of the goods.

This VAT can be recovered as input tax on the same VAT Return, subject to the normal rules for reclaiming input tax.

6. General explanation of VAT: registering for VAT

6.1 Requirement to be registered

6.1.1 Taxable supplies

Supplies of any goods and services, which are subject to VAT at any rate, including the zero rate and reduced rate, are called taxable supplies. They are called taxable supplies whether you are registered for VAT or not.

6.1.2 When VAT registration is required

If the value of your taxable supplies is over a specified limit, you must register for VAT, unless your taxable supplies are wholly or mainly zero rated in which case you may apply for exemption from registration. The limits are shown in the supplement to VAT Notice 700/1: should I be registered for VAT?.

If you are a Non-Established Taxable Person (NETP), you must register for VAT in the UK and start to charge VAT if you make any taxable supplies here. For further information on NETPs see paragraph 6.2.3.

If you are registered for VAT, you must charge and account for VAT on all your taxable supplies from the date that you are first registered.

For further information see VAT Notice 700/1 Should I be registered for VAT?. This notice also explains how to apply for:

  • exemption from registration if your taxable supplies are wholly or mainly zero rated
  • voluntary registration if the value of your taxable supplies is below the limits for compulsory registration

If you are a local authority, special rules apply regarding VAT registration - see VAT Notice 749: local authorities and similar bodies.

6.1.3 When to apply for VAT registration

You must notify the VAT Registration Service within 30 days of your liability to be registered arising. You may be liable to a financial penalty if you fail to notify at the proper time.

6.1.4 Who can be registered

It is the person, not the business, who is registered for VAT and each registration covers all the business activities of the registered person. The person to be registered can be, for example:

  • a sole proprietor
  • a partnership
  • a limited company
  • a club
  • an association
  • a charity

6.2 Other situations where you could be liable to be registered for VAT

Yes. If you are not already registered, or liable to be registered for VAT in respect of taxable supplies, there are some other circumstances in which you may become liable to be registered.

6.2.1 Acquisitions

You must register for VAT in the UK if:

  • you are not already registered for VAT
  • you acquire goods in the UK direct from another EU member state
  • the total value of these goods exceeds a certain limit

6.2.2 Distance sales

Distance selling occurs when a taxable person in one EU member state supplies and delivers goods to a customer in another EU member state and the customer is not:

  • registered for VAT
  • liable to be registered for VAT

The most common example of distance sales is mail order sales.

If you are a supplier in another EU member state and: then you:
the value of your distance sales to the UK exceeds certain limits must register for VAT in the UK.
you make distance sales of goods liable to excise duty in the UK, for example tobacco or alcohol products must register for VAT in the UK regardless of the value of these goods

You can find further information about registration in respect of acquisitions or distance sales in the UK in VAT Notice 700/1: should I be registered for VAT?. This notice also explains how to apply for voluntary registration for acquisitions or distance sales if the value of these is below the limits for compulsory registration.

6.2.3 Supplies by NETPs

(a) What is an NETP?

An NETP is any person who is not normally resident in the UK, and does not have a fixed or business establishment here and, in the case of a company, is not incorporated here. From 1 December 2012, NETPs who make any taxable supplies here in the UK will normally have to register and account for VAT here.

NETPs who make:

  • distance sales
  • acquisitions in the UK

above the relevant limits, must register and account for VAT here.

(b) Relevant supplies

An NETP who makes relevant supplies in the UK must register here, irrespective of the value of those relevant supplies. A relevant supply is the disposal of a capital asset by the NETP in the UK, where the NETP’s purchase of the goods (or anything incorporated in them) included UK VAT which the NETP recovered under the EC’s 8th or 13th Directive refund arrangements.

VAT Notice 723A: refunds of VAT in the European Community for EC and non-EC businesses gives further information about the refund scheme.

(c) Disposal of capital assets

If an unregistered UK business disposes of capital assets, and those assets were purchased from another person who had received (or any predecessor of that other person had received) a refund of UK VAT on the capital asset concerned (or anything incorporated in it) under the EC’s 8th or 13th Directive refund arrangements, the disposal of the capital asset by the unregistered UK business is a relevant supply. The unregistered business must register and account for UK VAT on the disposal of the capital asset, irrespective of the value of that asset.

Further information about NETPs, relevant supplies and the meaning of business establishment and predecessor for these purposes, is in VAT Notice 700/1: should I be registered for VAT?.

6.3 Services from abroad

If you receive services from abroad - see paragraph 5.4 - you must take their value into account when working out whether you must be registered. You may still have to be registered, even though you make no other types of taxable supplies or the value of your other types of taxable supplies are below the registration limits.

6.4 If you are VAT registered and also make some exempt supplies

If you are a taxable person and make some exempt supplies, please read paragraph 13.1.

6.5 If you have separated your business into smaller parts

Where a business has been artificially separated into smaller parts and this separation results in the avoidance of VAT, HMRC has power to direct that the persons running these activities be treated as a single taxable person and registered for VAT. If you have concerns about an artificial separation of your business, please contact HMRC.

You have the right to appeal to an independent tribunal against the issue of such a direction (see section 28).

6.6 VAT groups or a divisional registration

In certain circumstances a group of limited companies may apply to be treated as a single taxable person for VAT registration purposes, or a company may be allowed to register in separate divisions. For further information, see VAT Notice 700/2: group and divisional registration.

6.7 VAT registration if you are resident abroad

If you are resident abroad with a business in this country making taxable supplies, distance sales or acquisitions in the UK you may have to be registered for VAT if their value is over the relevant threshold.

If you meet the definition of an NETP at paragraph 6.2.3, and you make taxable supplies in this country, you must register for VAT regardless of the value of those supplies.

If you do not make any taxable supplies in the UK, but you have an establishment here that incurs UK VAT, you may wish to apply for registration on a voluntary basis. For further information see VAT Notice 700/1: should I be registered for VAT?

6.8 Registering a joint venture

If you and some other person intend to co-operate in making taxable supplies, distance sales or acquisitions in the UK as a joint venture, this may count as a partnership which would be a new and separate person for VAT registration purposes. The joint venture may be liable to register if the value of taxable supplies and so on is above the relevant thresholds.

If you are unsure whether the arrangements you have entered into count as a partnership for these purposes, contact the VAT Registration Service for advice.

7. Output tax: introduction and tax value

7.1 Output tax

Output tax is the VAT that is due on your taxable supplies. It is also due in certain other circumstances.

This guidance explains the general rules about output tax, including the amount of tax due and tells you about some special rules for particular cases.

It is in 3 sections:

Section Subject
7 Introduction and tax value
8 Particular situations
9 Business and non-business use

7.2 Tax value

The tax value of a supply is the value on which VAT is due. The amount of VAT is the tax value multiplied by the tax rate.

The tax value of a supply depends on what you are given in exchange for the supply. This is called the consideration. A consideration is any form of payment in money or in kind, including anything which is itself a supply.

The consideration for a supply includes any payment that you are given to cover your costs in making the supply, unless you incur the costs as an agent (see sections 22 to 25).

7.3 Consideration wholly in money

If the consideration for a supply is wholly an amount of money, the tax value is based on that amount. The amount paid includes tax. The tax is the VAT fraction of the amount and the rest of the amount is the tax value.

7.3.1 VAT fractions

Tax is normally calculated at the appropriate percentage of a price that has first been decided without VAT, and the VAT invoice will show these separate amounts. However, sometimes VAT has to be calculated from a price in which it is already included (for example, in the less detailed VAT invoices described in paragraph 16.6.1). To do this, you need the VAT fraction.

For example:

If you sell something at: and the VAT rate is: then the amount of VAT is:
£2.40 20% £0.40

However, £0.40 is not 20% of £2.40. It is 1⁄6 of £2.40.

This is how it is worked out: rate of tax / (100 + rate of tax)

So, with VAT at 20% the VAT fraction is: 20⁄120, which is the same as 1⁄6.

The VAT fraction varies according to the rate of tax chargeable. For example:

Rate of tax 5% 8% 10% 12.5% 15% 17.5% 20% 25%
VAT Fraction 1⁄21 2⁄27 1⁄11 1⁄9 3⁄23 7⁄47 1⁄6 1⁄5

Note: HMRC will publicise the revised VAT fractions at the time of any change in rates, but you can work it out for yourself by using this method.

7.3.2 Discounts

The following rules apply if you offer discounts to your customers. Guidance on how to account for VAT in these circumstances is contained in section 18.

(a) Unconditional discounts

If: and: then:
you offer a customer an unconditional discount the customer pays the discounted amount the tax value is based on the discounted amount

(b) Discounts for prompt payment

If: then: but:
you offer a discount on condition that the customer pays within a specified time the tax value is based on the actual amount paid if you need to account for the VAT before you know whether the discount has been taken up, you must declare the VAT on the undiscounted price

(c) Contingent discounts

If: then:
you offer a discount on condition that something happens later (for example, on condition that the customer buys more from you) the tax value is based on the full amount paid

If the customer later earns the discount, the tax value is then reduced and you can adjust the amount of tax by issuing a credit note (see paragraph 18.2)

7.4 Consideration not wholly in money

If the consideration for a supply is not in money (as in a barter transaction - see paragraph 8.7) or the consideration is partly in money and partly something else (as in part-exchange), the tax value of the supply is the monetary equivalent of the consideration.

You should normally calculate this by reference to the price, excluding VAT, which a customer would have to pay for the supply if money was the only consideration.

7.5 Other rules about tax value

Some special rules about tax value are explained in section 8 and section 9, regarding specific transactions. See also:

7.6 Cost of supply

For some types of transaction, explained in paragraphs 8.9.1 and 9.3, you will need to know the cost of a supply.

If the transaction is a supply of: then:
goods cost means what it would cost you to purchase the goods in question at the time of the supply. If no such purchase price can be ascertained then the value is what it would cost to purchase goods similar to, and of the same age and condition as, the goods in question, or, if that cost cannot be ascertained then the value is the cost of producing the goods in question at that time
services the cost of the supply is determined by reference to the standard-rated costs of making the deemed supply (see also paragraph 9.3.2)

7.7 Values expressed in a foreign currency

Paragraph 7.7 in this notice has the force of law under the VAT Act 1994, Schedule 6, Paragraph 11.

For VAT purposes, amounts of money must always be expressed in sterling. If you need to convert an amount from a foreign currency into sterling, you must do so on the following basis:

(a) unless you have adopted one of the alternatives set out below, you must use the UK market selling rate at the time of the supply. The rates published in national newspapers will be acceptable as evidence of the rates at the relevant time

(b) as an alternative, you may use the period rate of exchange published by HMRC for customs purposes - the VAT: general enquiries helpline can give you details of particular period rates, you may adopt this alternative for all your supplies or for all supplies of a particular class or description - if you opt for only a particular class or description, you should make a note of the details in your records at the time of adoption

You do not need to notify HMRC in advance if you wish to adopt this alternative, but having made such an option, you cannot then change it without first getting agreement by writing to the VAT Written Enquiries Team or:

(c) you may apply in writing to the VAT Written Enquiries Team to use a rate - or method of determining a rate - which you use for commercial purposes but which is not covered by (a) or (b)

In considering whether to allow such applications, local VAT offices will take into account:

  • whether the proposed rate or method is determined by reference to the UK currency market
  • whether it is objectively verifiable
  • the frequency with which it is proposed to update it (forward rates or methods deriving from forward rates are not acceptable)

Whatever rate or method you adopt, the appropriate rate for any supply is that current at the time of the supply.

If you make supplies that fall within the Tour Operators’ Margin Scheme (TOMS), see VAT Notice 709/5: tour operators margin scheme for details of how to convert the value of your purchases.

7.8 Excise Duty

In the case of goods subject to Excise Duty, the tax value is the value determined according to the principles outlined above in this section, plus the duty.

8. Output tax: particular situations

8.1 Mixed supplies

You make mixed supplies where you charge a single inclusive price for a number of separate supplies of goods or services. This is different from a single supply of a mixture of goods or services, to which a single rate of tax applies. See paragraph 8.2 for guidance on goods and packaging and paragraph 8.3 for guidance on goods and delivery.

If you make mixed supplies

and the individual supplies are: then you are:
liable to VAT at the same rate can calculate the tax that is due in the normal way
not liable to VAT at the same rate need to work out the tax value of each supply in order to calculate how much tax is due. If the tax value is based on the total price you charge (see paragraph 7.3) you do this by splitting that price between the supplies. This is called an apportionment

8.1.1 Apportionment

There is no special method of apportionment, unless you are using the TOMS, when you must use the method set out in VAT: Notice 709/5: tour operators margin scheme. However, your calculations must be fair and you must be able to justify them. It is usually best to use one of the methods shown in section 32.

8.1.2 When apportionment is necessary

Apportionment is only necessary if the price you charge is the only consideration for the supplies (see paragraph 7.3). If the consideration for the supplies is not wholly in money, you must account for VAT as explained in paragraph 7.4.

You must not use apportionment if the goods and services supplied together make up a single, indivisible supply. For example, a launderette supplies a single service of washing or drying clothes, taxable at the standard rate. It cannot be treated as supplying separate goods and services, such as water, heat, or use of the machines. You should contact the VAT: general enquiries helpline for advice if you have any doubt on this point.

8.2 Packaging

Normal and necessary packaging, including ordinary tins, bottles and jars, is treated as part of the goods which it contains. The price which your customer pays is treated as a payment for the contents of the packaging alone. This means that if your supply of the contents is zero-rated, then zero-rating also applies to the packaging.

But

if: then:
the packaging is more than is normal and necessary there is a mixed supply (see paragraph 8.1) and VAT is due on the packaging. This applies to storage containers and other types of packaging which could be sold separately.
you make an additional charge with a supply of goods for their container, to make sure that it is safely returned - and the charge is to be refunded on its safe return this additional charge is not subject to VAT. However, if the charge has been raised to cover the loan, hire or use of the container, then this charge would be subject to VAT at the standard rate.

8.3 Delivery charges (postage and packing etc)

When you supply goods:

if you: then the:
make an arrangement to deliver or post them for an extra charge extra charge is for the supply of a separate delivery service
send goods by post charge made to you by Royal Mail may be exempt, but your charge to your customer is taxable even if it is exactly equal to the charge made to you by Royal Mail

If you supply delivery services see VAT Notice 744B: freight transport and associated services.

However,

if: then:
the terms of your agreement with your customer for the supply of the goods require you to deliver or post them to the customer there is no separate supply of delivery or postage. This applies even if you show a separate charge

This means that you make a single supply of delivered goods and, if the supply of the goods is zero rated, then the zero rating also covers the delivery or postage. This applies to most mail order transactions, but not if a delivery service is available at an extra charge for customers who request it

You will find more about all of this in VAT Notice 700/24: postage, delivery charges and direct marketing.

8.4 Hire-purchase, conditional sale and credit sale

Hire-purchase occurs under an agreement for the hire of goods for periodic payments, where the hirer has the option to purchase.

Conditional sale means the sale of goods where the price is payable by instalments. The goods remain the property of the seller until the full price is paid or the customer meets another condition.

Credit sale means the sale of goods which immediately become the property of the customer but where the price is payable by instalments.

These are all supplies of goods, and VAT is due on their full value at the time of supply (tax point) see sections 14 and 15.

8.4.1 Supplies not involving a finance company

If you make an agreement to supply goods in any of the ways outlined above, without involving a finance company, which means you are self-financing the credit, your charge for credit will be exempt if it is disclosed as a separate charge to your customer.

The consideration for the taxable supply of goods is the cash price stated in the agreement, before any deposit is paid.

If you supply goods on interest free credit, by arranging with your customer for them to pay for goods over a set period without charging interest, the supply of goods is taxed according to its liability. As there is no charge for credit there is no exempt supply for VAT purposes.

Any connected credit ancillary charges are exempt unless the contract explicitly states that the charge relates, wholly or partially, to the supply of goods. If the supply relates to the credit, normally shown as administration, documentation or acceptance fees it will be exempt.

Fees that relate to goods - such as option fees or fees for transfer of title - are not exempt unless the charge for them is £10 or less.

There is more information about the exempt supplies connected with agreements of this kind in VAT Notice 701/49: finance.

8.4.2 Supplies involving a finance company

if the finance company: then your supply of goods is to:
becomes the owner of goods (for example, when a purchase is financed by a hire-purchase agreement) the finance company, not to the customer.

Note: This supply is taxable and you do not make an exempt supply. The finance company, in turn, makes a supply of goods and a supply of credit. The supply of credit is exempt if the credit charge is disclosed to the customer in writing
does not become the owner of the goods

(for example, when a purchase is financed by a loan agreement)
your customer. It is not to the finance company, even though that company may pay youdirect.

Note: This supply is taxable and tax is due on the selling price to your customer even if you receive a lesser amount from the finance company. You do not make an exempt supply. The finance company makes a supply of credit facilities to the customer in a separate transaction.

8.5 Second-hand goods

For most second-hand goods, there is a special scheme which allows you to charge tax on the difference between your buying price and your selling price, rather than on the full selling price. Use of the scheme is optional and is conditional on meeting the scheme rules about record keeping.

There is a simplified version of the scheme, known as Global Accounting, and a variation for use by auctioneers, called the Auctioneers’ Scheme.

You will find more about these schemes in VAT Notice 718: the VAT Margin Scheme and global accounting, VAT Notice 718/1: the VAT Margin Scheme on second-hand cars and other vehicles and VAT Notice 718/2: the VAT auctioneers’ scheme.

8.6 Exchange units

These rules govern the exchange of articles as part of your business.

If you: then you:
frequently exchange reconditioned articles for similar but unserviceable articles (for example, spare parts for cars, domestic appliances or other machinery) are providing a reconditioning service, and your supply is one of services. You must charge VAT on the full amount you charge for the reconditioned or exchange unit. If you reduce the charge to your customer by giving a refund when the unserviceable article is handed in, you should follow the procedure at paragraph 18.2
exchange a serviceable article for one which is unserviceable, on a one-off basis or you exchange goods for other goods at a reduced price in any other circumstances must treat it as part-exchange. [Paragraph 7.4] explains how you should calculate the VAT due

8.7 Barter and part-exchange

If you supply services, or new or second-hand goods, and receive other goods or services in full or part-payment, two separate supplies take place. There is a supply of goods or services from you to your customer and a supply of goods or services by the customer to you.

Both you and your customer must account for VAT if the customer is a taxable person. Paragraph 7.4 explains how you work out the value of these supplies.

8.8 Samples of goods

You may supply samples of your business supplies and this will not be a supply for VAT purposes providing that the following conditions are met.

8.8.1 General

The general conditions are that you:

  • make no charge for them
  • supply them for genuine business purposes as an illustrative or typical example of your product

8.8.2 Samples given to the general public via an intermediary

(For example, samples supplied by a manufacturer to a retailer for giving away as samples to the retailer’s customers).

As long as:

  • neither you, nor the intermediary charge for them
  • you supply them for genuine business purposes and they are to be given as an illustrative or typical example of your product
  • the samples remain your property until they are given to the final customer
  • any samples which are not used are returned to you or destroyed

then, since each sample meets the general rules, no VAT is due.

If you sell goods given to you as samples, VAT is due on the sale.

8.9 Gifts

8.9.1 General

An article is a gift where the donor is not obliged to give it and the recipient is not obliged to do or give anything in return. Competition prizes are usually treated as gifts.

A gift of goods is normally a taxable supply and VAT is due on the cost of the goods (see paragraph 7.6). VAT is not due on certain gifts of goods (see paragraph 8.9.3).

A gift of services is not a taxable supply. But you must remember that lending someone an item from your business for use outside your business is a taxable supply (see paragraph 9.3).

8.9.2 Goods and services supplied as inducements

You might offer someone a ‘gift’ on condition that they:

  • buy something from you
  • provide something for you
  • perform some other action of benefit to you

Goods and services supplied in these circumstances are not true gifts and VAT is due on the basis explained in paragraph 7.4. See VAT Notice 700/7: business promotions or the special rules for this kind of supply.

8.9.3 Gifts on which VAT is not due

VAT is not due on:

  • any business gifts made to the same person in any 12-month period, where the total cost does not exceed £50
  • a free meal to one of your employees

A gift of goods is zero rated if it is given to a:

  • charity for sale or export by it
  • taxable person (such as a charity trading subsidiary) passing all the profits of sale to a charity

8.10 Loss of goods

This paragraph explains when VAT is due if goods are lost, stolen or destroyed.

If: then VAT:
you have not supplied the goods is not due
you have supplied the goods is due
goods are lost on their way to your customer and the contract makes the customer responsible for any loss before delivery is due
goods are lost on their way to a customer and the contract makes you responsible for any loss before delivery and:

(a) you have issued a VAT invoice (see sections 16 and 17) to the customer

(b) you have not issued a VAT invoice




(a) is due on the amount shown less any credit you allow your customer

(b) is not due because you have not made a supply
damaged goods are surrendered to an insurer under the terms of an insurance policy is not due
You have been defrauded of goods may not be due if you report the fraud to the police. You should contact the VAT: general enquiries helpline for advice

8.11 Goods sold in satisfaction of a debt

A supply takes place if a registered person’s business assets are sold in satisfaction of a debt. Paragraph 18.4 tells you how to deal with these sales.

8.12 Payphones and phonecards

8.12.1 Payphones

If you rent a payphone from British Telecom or another supplier, you make supplies to the users of the phone and VAT is due on these supplies. The VAT fraction (see paragraph 7.3.1) of the money removed is your output tax.

Note: With some payphone installations, it is possible to switch from payphone mode to domestic mode and make calls without inserting money. If you use the domestic mode to make non-business calls, you cannot treat all the VAT you are charged by your supplier as input tax. You will find more about what to do in section 33.

8.12.2 Phonecards

If you act as an agent in the sale of phonecards, you are making a standard-rated supply. You must account for VAT on the commission received from your supplier. If you use a retail scheme, you will find more about what to do in the notice for the scheme you use. See also VAT Notice 700/7: business promotions.

8.13 Cancellation charges, forfeited deposits and booking fees

8.13.1 Charges, deposits and fees

If: then:
you make a cancellation charge when your customer cancels a booking no VAT is due on the charge because it is not a payment for a supply
your customer has to forfeit a deposit you can reclaim any VAT you have already accounted for on your next VAT Return
as an agent, you charge a customer a booking fee, for example, for making a hotel reservation that fee is the consideration for a taxable supply even if the customer does not take up the hotel room

8.13.2 Guarantees or insurance

If: then:
you provide a guarantee or insurance against your customer having to pay cancellation charges VAT is due on the charge that you make to the customer
But if: then:
you arrange for insurance to be provided to your customer along with your goods or services and, under the policy, it is the individual customer’s risk which is insured your supply of arranging the insurance may be exempt providing certain disclosure provisions are met. See VAT Notice 701/36: insurance for further details

8.14 Service charges and tips

If you make a service charge it is standard rated. If a customer freely gives a tip over and above your total charge no VAT is due on the tip - it is outside the scope of the tax.

8.15 Government departments, local authorities, visiting forces etc

If you supply goods or services to government departments (including health authorities), non-departmental public bodies, local authorities, embassies, foreign missions or international organisations in the UK, you should charge and account for VAT in the usual way.

If you receive supplies from government departments (including health authorities) or local authorities, you may be charged VAT.

If you make supplies of goods to visiting armed forces stationed in the UK, they can be relieved of VAT provided you meet certain conditions. See VAT Notice 431: visiting forces or contact the VAT: general enquiries helpline for advice.

8.16 Mobile phones, computer chips and emissions allowances

If you make supplies of the above goods or services to other VAT-registered businesses, the VAT on your supplies must, in most cases, be accounted for under the reverse charge procedure. This procedure is explained in detail in VAT Notice 735: VAT reverse charge on specified goods and services. In addition, for supplies of emissions allowances you will need to read Revenue and Customs Brief 35/10, which explains how the reverse charge procedure applies to these supplies.

9. Output tax: business and non-business use

9.1 Disposal of business assets

If you dispose of goods which form part of the assets of your business - for example, you sell them, give them away or take them into private use - this is normally a supply for VAT purposes and, where it is a taxable supply, you will have to account for VAT on the disposal.

However, special rules apply if you sell your business as a going concern. See paragraph 26.10 for details.

VAT may also be due on stocks and assets on hand when you deregister. See VAT Notice 700/11: cancelling your registration, unless you are selling the business as a going concern (for which you should see paragraph 26.10).

9.2 Use of goods or services in your business

If you use goods or services in your business, which the business itself has made or acquired, no VAT is normally due. This is because you do not make a supply.

However, your use of goods is treated as a taxable self-supply if you:

  • are a motor manufacturer, vehicle converter or vehicle dealer and use a motor car in your business (see VAT Notice 700/64: motoring expenses)
  • put a car on which you claimed input tax (because it was to be used as a taxi, for self-drive hire or giving driving instruction) to some other use
  • use your own labour to construct a building (other than dwellings or certain other residential buildings) or to increase the floor area of an existing building by 10% or more (see VAT Notice 708: buildings and construction)

9.3 Private use of goods, including road fuel, and services

9.3.1 Goods

When goods that belong to your business are put to a private use outside the business, you make a taxable supply. This includes goods that you have produced yourself, as well as goods from your stock and any other business assets.

Private use includes:

  • your own personal use of business assets
  • use outside the business by anyone else, such as an employee, a relative or a friend

Here are some common examples of private use:

  • you use goods owned by your business for private purposes
  • you give or lend someone an item from your business
  • your employees use goods that are assets of your business, at weekends or for holidays

If the goods are put to permanent private use, so that they are no longer business assets, the supply is one of goods. If there is no consideration for the supply, VAT is due on the cost of the supply (see paragraph 7.6).

If the private use is temporary, the supply is one of services. If there is no consideration for the supply, VAT is due on the cost of the supply. Over any period of time, this is the amount of depreciation on the goods plus any other standard-rated costs related to the goods multiplied by the proportion that the private use forms of the total use.

There are special rules for accounting for VAT on the private use of road fuel. See VAT Notice 700/64: motoring expenses for details.

9.3.2 Services

When services that you acquired wholly for business use are put to a private or other non-business use, you make a supply of services and must account for output tax.

Examples of the type of services affected are:

  • computer software
  • building construction and refurbishment, particularly to domestic premises, which are carried out for the purpose of business but whose use changes over time

Not affected are continuous supplies of services, where you should normally apportion input tax between business and private or non-business use.

To calculate the output tax due, you may use the accounting convention you use for depreciating similar business assets, or any other fair and reasonable method of valuing the cost to you of the private or non-business use.

10. Input tax: introduction and general rules

10.1 Input tax

Input tax is the VAT you are charged on your business purchases and expenses, including:

  • goods and services supplied to you in the UK
  • goods you import from outside the EU
  • goods you acquire from a taxable person in another EU member state (see VAT Notice 725: the single market)
  • goods you remove from a warehouse
  • any services supplied in the UK which you receive from abroad
  • overheads and research and development costs

This guidance explains the basic rules about input tax. It is in 4 sections:

Section Subject
10 Introduction and general rules
11 VAT paid on goods and services obtained before registration
12 Subsistence, staff entertainment and domestic accommodation expenses
13 Partial exemption

10.2 What can be claimed as input tax

You can normally reclaim input tax that relates to:

  • supplies you make which are liable at the standard rate, reduced rate or the zero rate (see section 3)
  • supplies you make which are outside the scope of UK VAT but which would be taxable supplies if they were made in the UK
  • supplies of services you make to a person who belongs outside the EU or supplies of services you make which are directly linked to the export of goods to a place outside the EU and the making of arrangements for such supplies, provided the supply would have been exempt by virtue of any item of Group 2, or any of items 1 to 8 of Group 5, of Schedule 9 to the VAT Act 1994

You will find more information about supplies of services in VAT Notice 741A: place of supply of services.

10.3 What can’t be claimed as input tax

You cannot normally reclaim VAT you have been charged:

10.4 How to reclaim input tax and the amount that can be claimed

10.4.1 How you reclaim

You reclaim your input tax by deducting it from your output tax when you fill in your VAT Return. If your input tax is greater than your output tax, you reclaim the difference from HMRC.

10.4.2 Amount of input tax

If Then
you can reclaim input tax in full the amount to reclaim will be the amount of VAT shown on the VAT invoice from your supplier.
the invoice is a less detailed VAT invoice (see paragraph 16.6.1) which does not show the VAT charged separately your input tax will be the VAT fraction of the total amount charged for any standard-rated supply (see paragraph 7.3.1).

This must be the VAT fraction for the rate of VAT in force at the time of supply (tax point). See sections 14 and 15.

10.5 Timescales for reclaiming input tax

You should normally claim input tax on the VAT return for the period during which the supplier’s tax point occurred or, for imported goods, the date of the importation. The timescales for EU acquisitions are given in VAT Notice 725: the single market. The tax point (time of supply) will be shown on your supplier’s invoice.

You must also hold the associated evidence to claim deduction of input tax. If you are unable to claim input tax in the normal period because you do not hold the necessary evidence you should claim the input tax on the VAT Return for the period during which you receive that evidence.

If you are approved to use the cash accounting scheme described in paragraph 19.3 you must also have paid for the supply. You can find full details of the scheme in VAT Notice 731: cash accounting.

If you do not claim deduction of the input tax on the VAT Return for the period in which you were first entitled to deduct it, this is an error. You cannot deduct it on a later return. If you wish to correct such error, you will need to do so in accordance with the methods explained in section 4 of VAT Notice 700/45: how to correct VAT errors and make adjustments or claims. The time limit for claiming deduction of input tax is 4 years from the due date for the return on which you were first entitled to claim deduction of the input tax.

10.6 Evidence needed for claims of input tax

You must keep certain records to be able to reclaim input tax. See section 19 for details.

To reclaim VAT you have been charged as input tax, you must hold valid evidence that you have received a taxable supply. You can find what counts as acceptable evidence in paragraph 19.7.

10.6A Repayment of input tax if you do not pay your supplier

For supplies received on or after 1 January 2003 you are required to repay any input tax you have reclaimed if you have not paid your supplier within 6 months of:

(a) the date of supply (usually taken as the invoice date), or if later (b) the due date for payment

VAT Notice 700/18: relief from VAT on bad debts contains more detailed information on this.

10.7 Refunds of VAT paid in other countries

If you buy goods or services in another member state of the EU or in other countries, you may have to pay VAT there. This should not happen if you buy goods for export from that country, but it may apply if, for example, you take part in a trade exhibition.

You cannot treat the VAT of another EU member state as input tax, but you may be able to reclaim the VAT from the authorities in that member state if:

  • the VAT was paid on goods or services for your business
  • you do not make taxable supplies in the other country
  • you have no place of business or other residence there

You may also be able to claim refunds of VAT or similar turnover taxes incurred in some non-EU countries.

You can find more about this in VAT Notice 723A: refunds of VAT in the European Community for EC and non-EC businesses.

10.8 Other helpful publications

Special rules apply if you are a body covered by section 33 of the Value Added Tax Act 1994. See VAT Notice 749: local authorities and similar bodies.

11. Input tax: VAT paid on goods and services obtained before VAT registration

11.1 Recovery of VAT paid before registration

VAT paid on goods and services that you received before you were registered for VAT is not input tax.

However, when you become registered you can treat this VAT as though it were input tax if you hold acceptable evidence (see paragraph 19.7) and can meet the conditions set out below.

You may only recover VAT you incurred before registration which is attributable to making taxable supplies. The partial exemption de minimis limits (see paragraph 13.1) do not apply to VAT incurred before registration.

Special rules apply if you become registered as a result of having exercised an Option to Tax for certain property transactions (see VAT Notice 742A: opting to tax land and buildings.

11.2 Conditions for recovering VAT incurred on goods before you registered

You can treat the VAT on goods that you obtained or imported before you were registered as if it were input tax. If:

  • the goods were supplied not more than 4 years before the business was registered or was required to be registered
  • the goods were supplied to the person who is now registered for VAT
  • the goods were obtained for the business which is now covered by the VAT registration and related to its taxable activities. If the services related partly to taxable activities and partly to other activities, you must work out what proportion of the use of the services related to the taxable activities
  • you still hold the goods or they have been used to make other goods which you still hold
  • you compile a stock account of the goods - this must show the quantities of goods and the dates when you obtained them, and if you used any goods to make other goods, or disposed of them after you were registered for VAT, the account must give details, with dates

Remember, you cannot claim VAT incurred on goods which have been completely used up before registration.

You do not need to reduce the VAT you deduct on fixed assets (for example a van or machinery) to account for any use of the asset before you are registered, provided the asset is still in use in the business when you register.

However, you must reduce the VAT you deduct on stock for resale to account for any stock that is sold before you are registered.

If the person who is now registered is a corporate body, you may still be able to reclaim VAT from before it was incorporated. See paragraph 11.4.

If you are buying an existing business, you should also read paragraph 26.10.

11.3 Conditions for recovering VAT incurred on services before you were registered

You can treat the VAT on services that you received before you were registered as if it were input tax. If:

  • the services were supplied not more than 6 months before the business was registered or was required to be registered
  • the services were supplied to the person who is now registered for VAT
  • the services were received for the purposes of the business which is now covered by the VAT registration and related to its taxable activities. If the services related partly to taxable activities and partly to other activities, you must work out what proportion of the use of the services related to the taxable activities
  • the services were not related to goods which you disposed of before you were registered (such as repairs to a machine which was sold before registration)
  • you compile an account of these services. This must describe the services and the dates when you received them and, if the services related to goods which you disposed of after you were registered for VAT, the account must give details, with dates.

If the person who is registered is a corporate body, you may still be able to reclaim VAT from before it was incorporated. See paragraph 11.4.

11.4 Rules for reclaiming VAT on supplies before incorporation

If your business is a corporate body (a company, charity or association), the rules above do not allow you to reclaim any VAT on goods or services obtained before the body was incorporated. But you can treat this VAT as input tax if the:

  • rules in paragraphs 11.2 or 11.3 would allow you to do so if the goods or services had been supplied to the person who is now registered for VAT
  • goods or services were obtained or imported by a person who became a member, officer or employee of the body
  • person was reimbursed for the full cost
  • person was not a taxable person at the time of the supply or importation

12. Input tax: subsistence, staff entertainment and domestic accommodation expenses

12.1 Subsistence and staff entertainment expenses

12.1.1 General

If Then you
you pay an employee a flat rate for subsistence expenses cannot claim as input tax any VAT incurred on those expenses
the business pays the actual cost of the supplies can claim the input tax incurred, as explained in paragraphs 12.1.2 and 12.1.3 below
the business pays a proportion of the actual costs can treat as input tax the VAT fraction (see paragraph 7.3.1) of the amount the business pays

12.1.2 Meals

If Then you can treat
your business provides canteen facilities for you or your staff all the VAT incurred in providing these facilities as input tax
your business pays for meals for employees any VAT incurred as your input tax
you are a sole proprietor, partner or director as input tax the VAT on meals you take when you are away from your normal place of work on a business trip.

but you cannot recover the VAT on meals which are not taken for business purposes

12.1.3 Hotel accommodation

When you or your employees are away from your normal place of work on a business trip, you can treat as input tax all the VAT incurred on hotel and similar accommodation.

12.1.4 Staff entertainment

You may recover VAT incurred on staff entertainment to the extent that the expenditure relates to the purpose of your business.

If you provide or pay for accommodation, meals or entertainment for anyone else, you should read VAT Notice 700/65: business entertainment.

12.2 Domestic accommodation

12.2.1 Employees

If your business provides domestic accommodation for employees, you can treat any VAT incurred as input tax.

12.2.2 Sole proprietors, partners and directors

If Then you
you are a sole proprietor, partner or director cannot recover the VAT on expenses such as repair or maintenance connected with your domestic accommodation - even if the business owns the accommodation and bears the cost
But if Then you
the accommodation is used partly for business purposes (for example, if you use a room for meetings or as your office) can reclaim as input tax part of the VAT charged. Section 33 explains how you work out how much VAT you can reclaim.

12A Input tax: mobile phones provided to employees

12A.1 VAT on the purchase and connection of a mobile phone

Where a business provides its employees with mobile phones for business use then, regardless of whether it allows private use, it can treat as input tax all the VAT it incurs on purchasing a phone and on standing charges for keeping it connected to the network providing the charges do not contain any element for calls.

12A.2 VAT on mobile phone call charges

12A.2.1 Business only

If a business does not allow its employees to make private calls, all of the VAT incurred on the call charges is input tax. HMRC will accept this is the case where a business has imposed clear rules prohibiting private use and enforces them. However, HMRC realises that in practice businesses with such a policy often tolerate a small amount of private calls. HMRC is prepared to treat such minimal use as being insignificant for VAT purposes and it will not prevent a business treating all the tax it incurs on calls as input tax.

12A.2.2 Charges for private calls

If a business charges its employees for any private calls they make, then it may treat the VAT incurred on the calls as input tax, but must account for output tax on the amounts it charges.

12A.2.3 Free private calls

If a business allows its employees to make private calls without charge, then it must apportion the VAT incurred on the call charges. It is not appropriate for businesses to adopt an alternative treatment of accounting for output tax on the private use.

12A.2.4 Apportioning calls

Businesses can choose any apportionment method that suits their individual circumstances providing the method chosen produces a fair and reasonable result. For example businesses could analyse a sample of bills taken over a reasonable period of time and use the same ratio for future VAT recovery on mobile phone bills.

12A.3 Fixed monthly charges

Where the phone package allows the business to make a certain quantity of calls for a fixed monthly payment and there is no separate standing charge, then it must apportion the VAT on the total charge for the package. Similarly, where the contract is for the purchase of the phone and the advance purchase of a set amount of call time for a single charge, the apportionment will also apply to the whole charge.

13. Input tax: partial exemption

13.1 Exempt supplies and partial exemption

If you incur input tax that is related to exempt supplies as well as taxable supplies, you are termed as partly exempt and you will probably not be able to claim all your input tax.

You must be able to relate your purchases and other expenses to the supplies that you make. Although it is relatively straightforward to work out whether goods or services have been used wholly to make either taxable or exempt supplies, you will probably have also incurred input tax on overheads that you cannot directly attribute in this way.

13.1.1 Apportionment of input tax

You will have to adopt a partial exemption method to apportion your input tax. To make this apportionment the standard method uses the relationship of the value of your taxable supplies compared to the value of your total supplies. If you do not think that this is fair and reasonable, you should write to the VAT Written Enquiries Team to seek approval to use another method.

If And Then
you incur VAT that is not input tax (see paragraph 4.6.3). you have to apportion that VAT to determine your input tax you must work this out before performing any calculation for partial exemption purposes. Partial exemption methods deal only with input tax

For some traders, whose exempt input tax is minimal, there are rules that allow exempt input tax to be treated as taxable input tax and claimed in full.

You can find out more about all this in VAT Notice 706: partial exemption.

13.2 Capital goods scheme

If you use a capital item (see below) in your business, the VAT incurred on the cost of the item may be subject to adjustments under the capital goods scheme. Adjustments become necessary where there is a change in the extent to which the item is used in making taxable and exempt supplies, or where there is a change in use between business and non-business. Adjustments are required over a period of time, known as the adjustment period, which, depending on the item, can be either 5 or 10 years. Since 1 January 2011, taxpayers may also seek approval for a combined method for dealing with taxable, exempt and non-business activities.

Capital items include:

  • computers and items of computer equipment with a VAT exclusive cost of £50,000 or more
  • land, buildings, civil engineering works and refurbishments with a VAT exclusive cost of £250,000 or more
  • ships, boats and other vessels, and aircraft with a VAT exclusive cost of £50,000 or more

The Capital Goods Scheme does not apply to assets acquired, or expenditure on assets held solely for resale. These are not capital items.

You will find more information about the capital goods scheme in VAT Notice 706/2: Capital Goods Scheme.

14. Time of supply (tax point): introduction and general rules

14.1 Introduction to Time of Supply

The information on this subject is in 2 sections.

This section provides general information. It explains the rules for working out the time when a supply of goods or services is treated as taking place. This is called the tax point. The section includes information on basic and actual tax points.

Section 15 provides information on some specific situations.

You must account for VAT in the tax period in which the tax point occurs at the rate in force at that time unless you use the cash accounting scheme. VAT Notice 731: cash accounting tells you more about the special rules for this scheme.

If your supplies fall within the TOMS, you must follow the rules for the particular scheme you are using, even if these conflict with the tax point rules set out in this section. See VAT Notice 709/5: tour operators margin scheme for more information.

You will also find it helpful to read VAT Notice 700/21: keeping VAT records.

14.2 General information about tax points

14.2.1 Basic tax points

If you supply Then the basic tax point is
Goods usually the date when you send them to your customer or the customer takes them away. This includes supplies under hire-purchase, credit sale or conditional sale agreements
Goods but they are not to be sent or taken away (for example because you build them on site) the date you make them available for your customer to use
services the date when the service is performed. It is normally taken as the date when all the work except invoicing is completed

But whether you supply goods or services, the basic tax point is overridden if an actual tax point is created under paragraph 14.2.2 below.

14.2.2 Actual tax points

If you Then the
(a) either issue a VAT invoice or receive a payment before the basic tax point tax point for the amount you invoice or receive is the date you issue the invoice or receive the payment, whichever happens first.

Payment can include payment by book entry, for example, the off-setting of supplies or mutual debts. The tax point is when the entry is made. If the payment by book entry is in the form of an adjustment in your annual accounts, the tax point is the date the accounts are approved, provided no previous tax point has occurred
(b) issue a VAT invoice up to 14 days after the basic tax point date when you issue the invoice becomes the tax point.

But remember that if you have already issued a VAT invoice (for a part payment) or received a payment before the basic tax point, this will have created a tax point under (a) for the amount invoiced or received

You do not have to follow the 14 day rule, but if you decide not to you must write and tell the VAT Written Enquiries Team.

If Then
you wish to have an extension of the 14 day rule you must apply to the VAT Written Enquiries Team in writing, giving your reasons.

You may need to do this if you normally issue invoices monthly, because an extension would allow you to issue invoices shortly after the end of the month in which you make the supplies.

In your application you must say whether you want to take the last day of the month or the date of issue of the VAT invoice as the tax point. Whichever you decide, you must be consistent if the extension is approved.

If Then
you issue a VAT invoice more than 14 days after the basic tax point without approval to extend the 14 day rule tax will be due at the basic tax point.

If you have already issued a VAT invoice (for a part payment) or received a payment before the basic tax point, this will have created a tax point under (a) above for the amount invoiced or received
you want to apply the 14 day rule to certain types of supplies only you must write to the VAT Written Enquiries Team, giving your reasons

To issue VAT invoices, you must send or give them to your customers for them to keep. A tax point cannot be created simply by preparing an invoice.

Remember, when a tax point is created by the issue of a VAT invoice, you must account for VAT in your return for the period covering that tax point. You cannot delay accounting for VAT until you have received payment.

14.2.3 Deposits

Most deposits serve primarily as advance payments and will create tax points under 14.2.2(a) when you receive them. But some types of deposit are not a consideration for a supply and their receipt does not create a tax point.

For example:

If And Then
you take a deposit as security to make sure the safe return of goods you have hired out the deposit is either:

refunded when the goods are returned safely, or

forfeited to compensate you for loss or damage
no tax point is created

Also,

If And Then
a third party acts as a stakeholder (as opposed to an agent of the vendor) in a supply of property receives a deposit no tax point is created until the money is released to the vendor

Note: If you want to adopt an earlier tax point than that laid down by any of these general rules, you must write to the VAT Written Enquiries Team, giving your reasons.

14.3 Continuous supplies of goods and services

If you supply services on a continuous basis and receive payments regularly or from time to time, there is a tax point every time you:

  • issue a VAT invoice
  • receive a payment, whichever happens first

If payments are due to be made at regular intervals (for example, by banker’s order or direct debit), you can issue a VAT invoice at the start of any period of up to one year (provided that more than one payment is due in the period) to cover all the payments due in that period.

For each payment you should set out the:

  • VAT-exclusive amount
  • date on which the payment is due
  • rate of VAT
  • VAT payable

If you decide to do this, you do not have to account for tax on any payment until the:

  • date on which it is due
  • date you receive it, whichever happens first

Note: your customer must not reclaim, as input tax, any VAT shown on the VAT invoice until:

  • the date on which the payment is due
  • you have received the payment, whichever happens first

The same procedures apply to continuous supplies of goods, in the form of water, gas and electricity.

14.4 Goods supplied on sale or return, approval or similar terms

When you supply goods on sale or return etc, they have not been sold and you still own them until such time as they are adopted by your customer. Adoption means that the customer indicates a wish to keep them. Until your customer does so, your customer has an unqualified right to return them at any time, unless you have agreed a time limit.

You may have fixed a time limit of adoption of less than 12 months from the date when the goods were sent.

If a time limit has Then the basic tax point is
been fixed for a period of 12 months or less the date when that time limit expires
not been fixed or fixed for a period of more than 12 months 12 months from the date when the goods were sent
In either case if your customer adopts the goods before the time limit expires the date of adoption becomes the basic tax point  

The basic tax point is overridden by the issue of a VAT invoice as set out in paragraph 14.2.2. If you receive a payment which is not returnable, this will normally indicate that the goods have been adopted. The payment of a deposit required as a condition of delivery - which is repayable if the goods are returned - does not constitute adoption.

It is your responsibility to make sure that your customers notify you promptly when they have adopted goods.

14.5 Change of tax rate

If there is a change in tax rate or tax liability, the tax point rules are particularly important in working out what rate of VAT to charge. Section 30 gives guidance on the special procedures to follow.

15. Time of supply (tax point): other situations

15.1 Goods taken for personal or other non-business use

(see paragraph 9.3.)

If you take goods out of your business Then
permanently, for non-business use the tax point is the time when the goods are taken or set aside for this purpose.
temporarily for non-business use, but they are still part of your stock or business assets there is a tax point each time they are used or - if the non-business use continues over a period of time - on the last day of each tax period that the goods are used or made available for that purpose

15.2 Taxable self-supplies

(See paragraph 9.2.)

The tax point for the self-supply of:

  • a motor car can only be decided once you use the vehicle in your business (for example, as a demonstration model) - the tax point is then the date when, by any positive and recorded action, you transferred the car from the new car sales stock
  • construction services is when the service is performed (see VAT Notice 708: buildings and construction)

15.3 Supplies in the construction industry under contracts providing for stage payments

If you make supplies, including design, advisory and supervisory services, under such a contract, the tax point is normally the time you:

  • issue a VAT invoice
  • receive a payment, whichever happens first

However, in some areas, there is a final tax point when the work is completed. You will find more about the tax point rules as they apply in the construction industry in VAT Notice 708: buildings and construction.

15.4 Supplies under contracts (other than stage payment construction contracts) providing for retention payments

The tax point for the payment of retention money is the date when you either:

  • issue a VAT invoice
  • receive any payment, whichever happens first

15.5 Supplier’s goods in possession of buyer

If And Then the tax point is the earliest of the following dates:
your customer takes delivery of goods under an agreement where ownership will pass at a future date the price will not be fixed until that date when ownership passes to your customer

when you issue a VAT invoice or

when you receive any payment
If And Then
the tax point is the date when ownership passes you issue a VAT invoice within 14 days of that date the date when the VAT invoice is issued becomes the actual tax point (see paragraph 14.2.2(b))

15.6 Supplies of water, gas or any form of power, heat, refrigeration or ventilation

There is a tax point each time you:

  • issue a VAT invoice
  • receive a payment, whichever happens first

15.7 Supplies made through coin operated machines

The tax point for supplies made through coin operated machines, such as vending, amusement and gaming machines, is normally the date the machine is used. Nevertheless, as an accounting convenience, HMRC permits operators to delay accounting for VAT until the takings are removed from the machine.

However, for all other purposes the normal tax point rules apply. This means, for example, that if takings are stolen from a machine, you must still account for VAT in full on the supplies made from the machine.

15.8 Royalties and similar payments

If Then
at the time when you supply services, you cannot work out the royalties etc that you will subsequently receive, and which are in addition to any amount already payable for the supply there will be a further tax point:

each time you receive a payment or

issue a VAT invoice, whichever happens first

15.9 Property

15.9.1 Leasehold

If you receive periodic payments of rent or ground rent, the tax point is:

  • the date you receive a payment
  • the date of issue of a VAT invoice if the supply is standard-rated, whichever happens first

This also applies to any premiums you may receive.

15.9.2 Freehold

The basic tax point for a freehold sale is the date of the completion of the conveyance. An earlier tax point is created by:

  • the issue of a VAT invoice (where the supply is standard rated)
  • receipt of all or part of the purchase price before the date of legal completion - but see paragraph 14.2.3 for further guidance on deposits

Under some contracts, further payments may become due dependent on some future event, such as the new owner obtaining planning permission. The tax point for what is a genuinely contingent element of the contract price is:

  • the receipt of the payment
  • issue of a VAT invoice, whichever happens first

15.9.3 Compulsory purchase

Supplies of land made as a result of a compulsory purchase order are subject to the normal tax point rules. However, in cases where the amount to be paid has still to be agreed at the time the land is transferred to the purchasing authority, the tax point is the date payment is eventually received.

15.10 Zero rated and exempt supplies

You can work out the tax point for any zero rated or exempt supply you make using the tax point rules set out in the preceding paragraphs in sections 14 and 15, though references to the issue of a VAT invoice don’t apply to such supplies.

15.11 Supplies of credit (including credit facilities in hire-purchase transactions)

A supply of credit is treated as taking place each time you receive a payment (for example, interest) for that supply, unless HMRC has approved a written application for an earlier date to be used.

The tax point for goods supplied on credit is worked out according to the general rules in paragraph 14.2.

15.12 Imported services

If you receive cross-border supplies of services on which you are required to account for VAT as a reverse charge, the tax point is as follows:

  • for a single supply of services it is the date the service is completed, or when it is paid for, if this is earlier
  • for continuous supplies it is the end of each periodic payment or billing period, or the date of payment where this is made earlier than the end of the period to which it relates, or the end of the billing period
  • for continuous supplies that are not subject to payment or billing periods and for which no payment is made beforehand, it is the end of each calendar year

16. VAT invoices: general rules

16.1 Introduction to VAT invoices

The information on this subject is in 2 sections.

This section explains:

  • the general VAT rules that apply to invoicing
  • the information that a VAT invoice must show
  • when you can issue simplified invoices

Section 17 gives information on some specific situations.

Other sources of information

You will find it helpful to read VAT Notice 700/21: keeping VAT records.

If you are involved in trade with other EU member states, you should refer to VAT Notice 725: the single market for guidance on invoicing requirements and keeping records and accounts for those supplies.

The rules for keeping records for Intrastat are similar to records for VAT. You will find information about them in VAT Notice 60: Intrastat general guide.

16.2 General information about VAT invoices

16.2.1 VAT invoices and when they should be issued

Whenever you supply standard-rated or reduced-rated goods or services to another registered person, you must give that person a VAT invoice.

A VAT invoice is a document containing certain information about what you are supplying. Paragraph 16.3 sets out the information you need to show. Your customers need VAT invoices to reclaim, as input tax, the VAT you have charged them.

You need not issue VAT invoices for supplies to customers who are not VAT registered. In practice, this will probably mean issuing a VAT invoice to any customers who ask for one, as you will usually have no way of telling whether they are VAT registered or not. You do not have to check that a customer is VAT registered before issuing a VAT invoice.

If your customer pays in cash - not by cheque - you must, if asked, clearly show on the VAT invoice that payment has been received, and the date of receipt.

16.2.2 Exceptions

You must issue a VAT invoice to a registered person unless:

You must not issue VAT invoices for:

Any goods sold under one of the VAT second-hand schemes (see paragraph 8.5). You will find details of the special invoices you have to use in VAT Notice 718: the VAT Margin Scheme and global accounting for second-hand goods, works of art, antiques and collectors’ items or supplies that fall within the TOMS.

16.2.3 Time limits

Normal time limits

Unless you have You must
already issued a VAT invoice that has itself created a tax point, either:

before the basic tax point (as explained in paragraph 14.2.2(a)), or

under the 14 day rule (as explained in paragraph 14.2.2(b)) - including any extension allowed under that rule
normally issue a VAT invoice within 30 days of the tax point arising (sections 14 and 15 explain when a tax point arises).

An invoice issued under the 30 day rule does not in itself create a tax point

You can extend the 30 day time limit without applying to HMRC in the following cases:

  • you are awaiting VAT invoices from your own suppliers or sub-contractors
  • an extension of the 14 day limit has already been approved
  • special accounting arrangements have been approved
  • where you are newly registered but have not been notified of your VAT registration number - in this case you must issue the VAT invoice within 30 days from the date of advice of the VAT registration number

In all cases other than those mentioned above, or if you have any doubt, you must apply in writing to the VAT Written Enquiries Team if you need an extension of the time limit. General phone enquiries may be directed to the VAT: general enquiries helpline.

16.2.4 Must invoices be written in English

No. You may, if you wish, write your invoices in a language other than English. But you must be able to provide English translations of specific invoices within 30 days if asked to do so by a visiting officer. These rules apply to both electronic and paper invoices.

16.3 Information required on a VAT invoice

16.3.1 General

You must show the following details on any VAT invoice you issue:

  • a sequential number based on one or more series which uniquely identifies the document
  • the time of the supply (tax point)
  • the date of issue of the document (where different to the time of supply)
  • your name, address and VAT registration number - you may issue invoices under a trading name, but your legal name and address details must still be shown somewhere on the document
  • the name and address of the person (customer) to whom the goods or services have been supplied
  • a description sufficient to identify the goods or services supplied
  • for each description, the quantity of the goods or the extent of the services, and the rate of VAT and the amount payable, excluding VAT, expressed in any currency
  • the gross total amount payable, excluding VAT, expressed in any currency
  • the rate of any cash discount offered
  • the total amount of VAT chargeable, expressed in sterling
  • the unit price (see paragraph 16.3.2)
  • the reason for any zero rate or exemption

The final bullet point refers to the following types of supply:

  • supplies subject to a second-hand margin scheme
  • supplies subject to the TOMS
  • intra-EU exempt supplies
  • intra-EU reverse charge supplies
  • intra-EU zero-rated supplies

16.3.2 Unit price

The requirement to include unit price on an invoice applies to countable goods or services. For services the countable element might be, for example:

  • an hourly rate
  • or a price for standard services

If the supply cannot be broken down into countable elements, then the total tax exclusive price will be the unit price. Additionally, the ‘unit price’ may not need to be shown at all if it:

  • is not normally provided in a particular business sector
  • is not required by the customer

16.3.3 Example of a VAT invoice

You will find an example of a simplified VAT invoice at paragraph 16.7 and in VAT Notice 700/21: keeping VAT records.

16.4 Invoicing in a foreign currency

If you issue VAT invoices in a foreign currency for supplies of goods or services that take place in the UK, you must convert the total amount of VAT payable into sterling (see paragraphs 16.3.1 and 16.6.2). Paragraph 7.7 tells you how to do this.

16.5 Invoicing zero-rated or exempt supplies

If Then
you issue a VAT invoice which includes supplies that are zero-rated or exempt you must make sure that those items show clearly that there is no VAT payable and their values must be totalled separately.

You can, of course, issue separate invoices for zero rated or exempt supplies. This may be a useful way of keeping the necessary records for your business (see paragraph 19.5.1)

16.6 Less detailed and modified VAT invoices

If you make retail sales, you should give your customer a VAT invoice if asked for one. However, you may be able to use one of the options described at paragraphs 16.6.1 and 16.6.2 below (see also paragraph 16.2.1).

You may be liable to a financial penalty if you do not issue a VAT invoice when asked to do so by a taxable person.

16.6.1 Less detailed VAT invoice

If the charge you make for the individual supply Then you
is £250 or less (including VAT) can issue an invoice showing:

- your name, address and VAT registration number

- the time of supply (tax point)

- a description which identifies the goods or services supplied

- and for each VAT rate applicable, the total amount payable, including VAT and the VAT rate charged.

Exempt supplies must not be included in this type of VAT invoice.

To work out the amount of VAT in a VAT-inclusive price, you have to multiply by the VAT fraction (see paragraph 7.3.1)
exceeds £250 and you are asked for a VAT invoice must issue either a:

- full VAT invoice (see paragraph 16.3), or

- modified VAT invoice (see paragraph 16.6.2 below)

If you accept credit cards, such as Visa/MasterCard or Barclaycard, you may adapt the sales voucher you give to the cardholder at the time of the sale to serve as a less detailed VAT invoice.

The credit card voucher should show:

  • your name and address
  • the charge made, including VAT
  • the date of sale

You must add to the voucher:

  • your VAT registration number
  • the rate of VAT
  • a description of the goods or services supplied

If you also issue an invoice or receipt, only one of the documents may be in the form of a VAT invoice.

16.6.2 Modified VAT invoice

Provided your customer agrees, you can issue an invoice showing:

The VAT-inclusive value of each standard-rated or reduced rate supply (instead of the VAT-exclusive values).

At the foot of the invoice, it must show separately the total:

  • VAT-inclusive value of the standard rated or reduced rate supplies
  • VAT payable on those supplies shown in sterling
  • value, excluding VAT, of those supplies
  • value of any zero-rated supplies included on the invoice
  • value of any exempt supplies included on the invoice

In all other respects the invoice should show the details required for a full VAT invoice.

If you are asked for a VAT invoice, but are unable to use either of these options, you must issue a full VAT invoice (see paragraph 16.3).

16.7 Example of a completed VAT invoice

Sales invoice No. 174

From: FOUNDATION TRADING (UK) LTD, BOWMAN STREET, CHESTER

VAT No: 987 6543 21

To: A. N. Other Ltd, 57 NORTH ROAD, LONDON, N12 5NA

Sale: Time of supply 16/01/12

Number Description and price Amount exclusive of VAT VAT rate VAT net
6 Radios, SW15 @ £25.20 151.20    
4 Record players @ £23.60 94.40    
6 Lamps T77@ £15.55 93.30 20%  
    338.90 20% 64.39*
  Delivery (Net) 10.00 20% 2.00
  Terms: Cash discount of 5% if paid within 30 days 348.90   66.39
  VAT 66.39    
  Total 415.29    
  *calculated on the discounted price      

17. VAT invoices: particular situations and rules

17.1 VAT invoices for petrol and diesel oil (derv)

If the VAT-inclusive charge for a sale of petrol or derv is Then you may
£250 or less issue a less detailed VAT invoice (see paragraph 16.6.1)
More than £250 adapt the information required for a full VAT invoice (see paragraph 16.3) as follows:

- show the registration number of the vehicle instead of the customer’s name and address, and

- you need not show the number of gallons/litres supplied or the type of supply

17.2 Cash and carry wholesalers

If you are a cash and carry wholesaler, you can adapt the till rolls produced by your cash registers to serve as VAT invoices, provided that you meet all the following conditions:

  • you use a product coding system which clearly identifies the different classes of goods sold - the system should be based on at least 2 digits, possibly 3 if you sell a wide range of products
  • you must prepare and maintain product code lists and provide all your VAT-registered customers with up to date copies of the lists
  • you must make sure that the till roll includes all the details required for a full VAT invoice (see paragraph 16.3)
  • you must keep a copy of till rolls and product code lists for 6 years (unless your VAT office has agreed that you need only keep them for a shorter period)

If you cannot meet these conditions, you must issue a full VAT invoice when a customer asks for one, showing all the details required by paragraph 16.3.

17.3 Pro-forma invoices

Pro-forma invoices are often used to offer goods or services to potential customers. Such an offer may or may not be taken up, and the goods or services will not be supplied unless payment is received.

If you use pro-forma invoices in this way, they cannot be used as evidence to reclaim input tax, even if they show all the details required for a VAT invoice. You should make sure that they are clearly marked ‘THIS IS NOT A VAT INVOICE’.

If Then
after you have issued such an invoice, you actually supply the goods or services to your customer, or receive payment you must issue a proper VAT invoice.

17.4 Self-billing and authenticated receipts

17.4.1 Self-billing

Under a self-billing arrangement, the customer makes out VAT invoices for a VAT-registered supplier and sends a copy to the supplier with the payment. Following EU-wide changes to invoicing rules, VAT self-billed invoices must include the reference ‘SELF_BILLING’

If you want to use a self-billing system for supplies made by or to you, you must meet the conditions set out in VAT Notice 700/62: self billing.

17.4.2 Authenticated receipts

You should not confuse the use of authenticated receipts with self-billing.

Authenticated receipts are used in the construction industry in place of VAT invoices for supplies of services or of goods and services made under contracts which provide for periodic payments to be made.

The receipts are only valid for VAT purposes if they:

  • contain all the information detailed in paragraph 16.3
  • are authenticated - that is, signed by the supplier and no normal VAT invoice or self-billed document is issued for the supplies

You can find more about the use of authenticated receipts in VAT Notice 708: buildings and construction.

17.5 Calculation of VAT on invoices - rounding of amounts

Note: The concession in this paragraph to round down amounts of VAT is designed for invoice traders and applies only where the VAT charged to customers and the VAT paid to HMRC is the same. As a general rule, the concession to round down is not appropriate to retailers, who should see paragraph 17.6.

You may round down the total VAT payable on all goods and services shown on a VAT invoice to a whole penny. You can ignore any fraction of a penny.

17.5.1 Calculation based on lines of goods or services

If you wish to work out the VAT separately for a line of goods or services, which are included with other goods or services in the same invoice, you should calculate the separate amounts of VAT by rounding in one of the following ways:

  • down to the nearest 0.1p - for example, 86.76p would be rounded down to 86.7p
  • to the nearest 1p or 0.5p - for example, 86.76p would be rounded up to 87p

Whatever you decide, you must be consistent.

The final total amount of VAT payable may be rounded down to the nearest whole penny.

17.5.2 Calculation based on tax per unit or per article

If you want to work out the VAT per unit or per article (for example, for use in price lists), you must work out the amounts in one of the following ways:

  • 4 digits after the decimal point and then round to 3 digits - for example, if the VAT is £0.0024, it should be rounded to £0.002 (0.2p)
  • the nearest 1p or 0.5p - if you decide to do this, you must not round the VAT down to ‘nil’ on any unit or article that is liable at the standard or reduced rate, for example, if the VAT is £0.0024 it should be rounded to £0.005 (0.5p)

17.6 Calculation of VAT at retailers

Most retailers account for VAT using a retail scheme. If that is the way you account for VAT, this paragraph doesn’t affect you.

Retailers are increasingly using sophisticated till technology to identify the VAT due on each transaction and issue an invoice. If you do not use a retail scheme, but instead calculate VAT at line level or invoice level, you must not round the VAT figure down. However, you may round (up and down) each VAT calculation.

17.7 Computer invoicing

Any invoice produced by your computer, either on paper, magnetic media or for direct transmission, must include all the information required for a normal VAT invoice.

You may be able to use a computer to:

  • provide your customers with VAT invoices on magnetic tape or disc etc
  • transmit VAT invoice details by electronic means direct to your customers’ computers
  • receive VAT invoices on magnetic tape or disc etc from your suppliers
  • receive VAT invoice details by electronic means from your suppliers direct to your own computer

Before you do so, you will have to comply with certain conditions as set out in VAT Notice 700/63: electronic invoicing.

If you do not use advanced electronic signature, or Electronic Data Interchange (EDI) systems you may find it helpful to seek advice from the VAT: general enquiries helpline as soon as you decide to use computer invoicing.

17.8 Transmission of invoices

If you send your VAT invoices to your customers using a fax machine or e-mail, the normal rules regarding VAT invoices apply. Invoices received in this way are acceptable as evidence for input tax deduction, subject to the normal rules.

17.8.1 Transmission by fax

This form of transmission relies on both the supplier and the customer having fax machines.

There is a risk with this form of transmission - that the invoice may not be permanent if your customers have thermal-paper fax machines. More modern fax machines copy onto plain paper and these copies are as permanent as normal paper invoices. However, thermal paper copies deteriorate over time, and, as a result, your customers may be unable to fulfil their obligation to preserve their invoices for 6 years.

HMRC therefore advises you to warn customers that the invoices may not be permanent if they have a thermal-paper fax machine. Preferably, this should be by a note on the VAT invoice, but it can be in any form practicable to you.

17.9 Using a third party to transmit invoices

You may, if you wish, ‘outsource’ the physical responsibility for the issuing of your sales invoices to a third party. But you must remember that all the legal obligations relating to the contents, storage and production of the invoices raised remain with you.

You can find out more about the conditions you will need to meet if you are using a third party to issue your invoices electronically at section 8 of VAT Notice 700/63: electronic invoicing.

18. Credits and debts

18.1 Introduction to credits and debts

This section tells you what to do if you:

  • allow a credit or contingent discount
  • offer prompt payment discounts
  • replace returned goods
  • deal with goods which are sold to satisfy a debt
  • wish to claim relief from VAT on a bad debt

18.2 Credits and contingent discounts

18.2.1 Introduction

When you allow a credit or contingent discount to a customer who can reclaim all the tax on your supply as input tax, you do not have to adjust the original VAT charge provided both you and your customer agree not to do so. Otherwise, you should both adjust the original VAT charge. You should issue a credit note to your customer and keep a copy.

If both parties agree, the customer may issue a tax debit note instead of the supplier issuing a credit note. A valid debit note places the same legal obligations on both parties as a valid credit note and must fulfil the same conditions.

However, you must not issue a credit note if you are using a VAT MOSS return to make your declarations and payments on business to consumer digital services. This is because corrections can only be made to the original VAT Return and not by making an amendment to a later return.

You will find more information in VAT Notice 700/45: how to correct VAT errors and make adjustments or claims.

18.2.2 Accounting for prompt payment discounts

If the discount is taken up within the specified time you may adjust the consideration and amount of VAT accounted for by issuing a credit or debit note. If you choose not to use a credit or debit note, the original invoice must contain the following information:

  • the discount terms (which must include, but need not be limited to, the time by which the discounted price must be paid)
  • a statement that the customer can only recover as input tax the VAT paid to the supplier

HMRC recommends businesses use the following wording on the invoice: “A discount of X% of the full price applies if payment is made within Y days of the invoice date. No credit note will be issued. On payment you may only recover the VAT actually paid”.

In the absence of a credit or debit note, the original invoice, together with other records which show the consideration received, such as a bank statement, provide the evidence necessary to support the VAT adjustment.

18.2.3 Valid credit or debit notes

To be valid for VAT purposes a credit or debit note must:

  • reflect a genuine mistake or overcharge or an agreed reduction in the value of the supply, and be issued within one month of this being discovered or agreed
  • give value to the customer, that is, represent a genuine entitlement (or claim) on the part of the customer for the amount overcharged either to be refunded or offset against the value of future supplies
  • be headed ‘credit note’ or ‘debit note’ as appropriate and show clearly all the following details:
    • the identifying number and date of issue
    • the name, address and registration number of the supplier
    • the name and address of the customer
    • the reason for its issue - for example, ‘returned goods’
    • a description which identifies the goods or services for which credit is being claimed or allowed
    • the quantity and amount for each description
    • the total amount credited, excluding VAT
    • the rate and amount of VAT credited
    • the number and date of the original VAT invoice - if you cannot do this (for example, because returned goods cannot be identified with a particular invoice), you must be able to satisfy HMRC by other means that you accounted for VAT on the original supply

Credits for zero-rated or exempt supplies included in a credit or debit note must be totaled separately and the note must show clearly that no VAT credit has been allowed for them.

If credit notes are issued without VAT adjustment, they should state ‘This is not a credit note for VAT’. Even if you and your customer decide not to adjust the VAT on credit notes which pass between you, you will still need to adjust your records of outputs and inputs in order to complete your VAT return. Paragraph 19.6 explains how you should record any credits allowed. If you issue invoices to persons in another member state, credit or debit notes which amend those invoices must contain all the information required to be included on an invoice.

18.2.4 Tax rates

The rate of VAT to be used for a credit or debit note is the one which was in force at the time of the tax point of the original supply.

Section 30 tells you what to do if you have to issue a credit note because of a change in tax rate.

18.2.5 Accounting for credit or debit notes you issue or receive

When you issue a credit note or receive a debit note, you must adjust:

  • the records of the taxable supplies you have made
  • your output tax for credits allowed

The accounts or supporting documents must make clear the nature of the adjustment and the reason for it.

If you have charged or claimed an incorrect amount of VAT and have already declared it on your VAT Return, the remainder of this section does not apply. This is because you can only correct an error in your declaration by adopting the appropriate method of error correction detailed in section 4 of VAT Notice 700/45: how to correct VAT errors and make adjustments or claims.

Where the adjustment is not in respect of an error in the amount of VAT declared on a VAT Return, you should make any VAT adjustment arising from the issue or receipt of a credit or debit note in the VAT account for the period in which you enter the adjustment in your business accounts.

If the VAT credits you allow your customers exceed the VAT you charged on your sales in any tax period, you will have a minus figure to enter into the output tax box (box 1) of your VAT Return. You must make it clear that it is a minus figure by:

  • inserting a minus sign before the figure if you use an electronic return. (See also paragraph 20.4.2)
  • writing it in brackets if you use a paper VAT Return

18.2.6 Bankruptcy, insolvent liquidation and administrative receivership

The tax point for credit or debit notes issued by - or on behalf of - insolvent traders, is the date on which the supply was originally made or received.

18.2.7 Cancelled registrations

The tax point for any credit or debit note you issue or receive after the date of cancellation of your registration is the date of the original supply. If this happens after you have already rendered your final VAT Return you should write to the VAT Written Enquiries Team to arrange for any adjustments to be made.

HMRC will not make any repayment where credit/debit notes do not meet the conditions for validity at paragraph 18.2.2 above.

18.3 Replacement of returned goods

The following rules apply when you replace returned goods.

If Then you may either
you replace returned goods with similar goods let the original VAT charge stand, or

cancel it (by issuing a credit note if a VAT invoice has previously been issued) and charge VAT on the replacement goods
If Then
the original VAT charge is allowed to stand you need not account for VAT on the replacement goods, provided that they are supplied to the customer free of charge
If the replacement goods are supplied at a price that is: Then you…
lower than the original goods may reduce the VAT charge by issuing a credit note, provided that a VAT invoice has previously been issued.
higher than the original goods must account for the additional VAT

18.4 Goods sold in satisfaction of a debt

A supply takes place when a registered person’s business assets - including property - are sold in satisfaction of a debt. When this is a taxable supply, the proceeds of the sale are treated as tax-inclusive and tax must be accounted for as follows.

18.4.1 Goods sold by auction

Within 21 days, the auctioneer must send:

You can also obtain form VAT 833 by calling the VAT: general enquiries helpline.

The auctioneer must also issue a VAT invoice containing the information in paragraph 16.3 but giving the name, address and VAT registration number of the supplier. The auctioneer need not be registered to issue this and should not ask the supplier for a VAT invoice.

18.4.2 Goods not sold by auction

The seller (the person with the right to sell the goods) must account for the tax and issue the documents described in paragraph 18.4.1.

18.4.3 Exceptions

This procedure does not normally apply to sales by:

  • liquidators: as the company in liquidation remains in being, although controlled by the liquidator, sales are made by the company - the company must account for the tax in the normal way
  • trustees in bankruptcy: a bankrupt person’s property is vested in the trustee, who then carries on the business in their own right and must account for the tax in the normal way
  • administrative receivers: an administrative receiver usually acts as the agent of the company, if so, tax is accounted for in the normal way - if the administrative receiver is not the company’s agent, the procedure at paragraph 18.4.1 must be used

18.5 Relief from VAT on bad debts

You may be able to claim relief from VAT on bad debts provided various conditions are met.

The conditions have varied over time. The present rules mean that you can claim relief on any debts which are more than 6 months old if you have:

  • paid the VAT to HMRC
  • written off the debt in your accounts
  • sent a notification to the purchaser (this condition does not apply to supplies made on or after 1 January 2003)

For supplies made after 1 May 1997, claims must be made within 4 years and 6 months.

If you make a claim and later receive payment, you must refund the appropriate amount to HMRC.

See VAT Notice 700/18: relief from VAT on bad debts for a fuller explanation and details of all the conditions that need to be met. This includes information on when relief is available on supplies made between 1 October 1978 and 26 July 1990.

No relief is available on supplies made before 1 October 1978.

19. Records and accounts

19.1 Introduction to records and accounts

All taxable persons must keep and preserve certain records and accounts.

This section sets out in detail the VAT record-keeping requirements that anyone who is registered for VAT must comply with.

There are several other important sources of information:

Introduction You will find it helpful to read VAT Notice 700/21: keeping records and accounts
EU trade If you are involved in trade with other EU member states you should see VAT Notice 725: the single market for guidance on invoicing requirements and keeping records and accounts for those supplies
Intrastat The rules for keeping records for Intrastat are similar to those for VAT. You will find information about them in Notice 60: Intrastat general guide
Imports and Exports If you are involved in trade with non-EU countries you should see VAT Notice 702: imports and VAT Notice 703: exports and removals of goods from the UK.
Retail schemes If you use a retail scheme you should read this section with the rules for your scheme. You will find more about the schemes in VAT Notice 727: retail schemes and the individual scheme notices.
Cash accounting If you account for VAT on the basis of cash received and paid under the cash accounting scheme, you should read this section with the rules set out in VAT Notice 731: cash accounting.
Second-hand schemes If you use one of the VAT second-hand schemes, there are special rules about record-keeping and the retention of records. See VAT Notices 718: the VAT Margin Scheme and global accounting, VAT Notice 718/1: the VAT Margin Scheme on second-hand cars and other vehicles and VAT Notice 718/2: the VAT Auctioneers’ Scheme
Partly exempt businesses If you cannot reclaim all your input tax because of the partial exemption rules (see paragraph 13.1), you should also look at VAT Notice 706: partial exemption. This will tell you about any adjustments that you will have to make to your records.
Capital goods If you acquire or create a capital item for use in your business (see paragraph 13.2), you should look at VAT Notice 706/2: Capital Goods Scheme. This will tell you what records you need to keep in case a capital goods scheme adjustment becomes necessary.

19.2 What records must be kept

19.2.1 General requirements

You must keep records and accounts of all taxable goods and services which you receive or supply in the course of your business. This includes:

  • standard rated
  • reduced rated
  • zero-rated supplies

You must also keep records of any exempt supplies that you make.

In addition, you must keep a summary of the totals of your input tax and output tax for each tax period. This is called a VAT account (see paragraph 19.12).

All these records must be kept up to date and must be in sufficient detail to allow you to calculate correctly the amount of VAT that you have to pay to, or can claim from, HMRC.

You do not have to keep these records in any set way. But they must be kept in a way which will allow HMRC’s officers to check easily the figures that you have used to fill in your VAT Return. If your records do not satisfy the requirements set out in this notice, HMRC has the power to direct you to make the necessary changes.

However you decide to keep your records, you must be able to make them readily available to HMRC’s officers when they ask to see them.

If you have more than one place of business, you must keep a list of all your branches at your principal place of business.

19.2.2 Activities for which records must be kept

You must keep records of all operations connected with your business which affect the amount of VAT you have to pay or can reclaim.

This includes:

  • every supply of goods or services you receive on which you are charged VAT by your suppliers
  • services supplied in the UK which you receive from abroad
  • every EU acquisition, importation or removal from warehouse
  • all the supplies made by your business (including any zero rated or exempt supplies)
  • any goods you have exported (see paragraph 5.6)
  • any gifts or loans of goods
  • any taxable self-supplies - for example, cars
  • any goods which you acquire or produce in the course of your business which you put to private or other non-business use

You must also record adjustments such as:

  • corrections to your accounts
  • amended VAT invoices
  • any credits you allow or receive
  • any capital item which you acquire or create for use in your business (see paragraph 13.2).

19.2.3 Maintaining and preserving records

You must normally keep your business records for 6 years.

Except, if you are a business that supplies digital services to consumers and you use the VAT MOSS online service for your returns, you must keep these records for a period of 10 years from 31 December of the year during which the transaction was carried out.

However

If this Then
causes you storage problems

involves you in undue expense

causes you other difficulties
You can write to the VAT Written Enquiries Team to ask if you can keep some of your records for a shorter period

Small businesses with limited storage space may find this particularly useful

You must get the agreement of HMRC before destroying any of your business records that are less than 6 years old

Examples of business records include:

  • annual accounts, including profit and loss accounts
  • bank statements and paying-in slips
  • cash books and other account books
  • credit or debit notes you issue or receive
  • documentation relating to dispatches/acquisitions of goods to/from EU member states
  • documents or certificates supporting special VAT treatment such as relief on supplies to visiting forces or zero-rating by certificate
  • import and export documents
  • orders and delivery notes
  • purchase and sales books
  • purchase invoices and copy sales invoices
  • records of daily takings such as till rolls
  • relevant business correspondence
  • your VAT account

19.2.4 Microfilm records

You can keep your records on microfilm or microfiche provided that copies can be easily produced and that there are adequate facilities for allowing HMRC’s officers to view them when required.

You should get written clearance from the VAT Written Enquiries Team before any transfer to microfilm or microfiche. You may be required to operate the old and new systems side by side for a limited period of time.

HMRC has power to refuse or withdraw approval for the use of microfilm or microfiche if the requirements are not met.

19.2.5 Computer records

You can also keep your records on a computer, for example, on magnetic tape, disc etc, provided they can be readily converted into a satisfactory legible form and made available to HMRC on request.

If you do keep your records on a computer, HMRC can have access to it and can check its operation and the information stored. HMRC can ask for help from you or anyone else having charge of, or who is otherwise concerned with the operation of, the computer or its software.

If you employ a computer bureau, you are responsible for arranging for the bureau to make your records available when HMRC wishes to see them. Normally this will be at your principal place of business.

If you decide to use a computer or the services of a computer bureau for VAT accounting, you do not need to notify HMRC of this decision, however you do have a responsibility to make sure that the records are retained for the statutory period and that they are made available when required by an officer of HMRC.

HMRC has power to refuse or withdraw approval for the use of computer media in any individual case if the requirements cannot be met.

19.2.6 Audit

Where your business is subject to an independent audit, the audit will normally cover the VAT account and other records relating to VAT. However, this does not mean that auditors must make a specific reference to the VAT records in their report.

19.3 Cash accounting scheme

If the annual value of your taxable supplies (excluding VAT) is not more than £1,350,000 you may find it to your advantage to use the cash accounting scheme.

The scheme allows you to account for VAT on the basis of payments received and made, rather than tax invoices issued and received. It is particularly beneficial if you give your customers lengthy periods of credit or if you have a high level of bad debts.

You will find full details of the scheme in VAT Notice 731: cash accounting. If you are using the scheme, you should read this section together with the rules set out in this notice.

19.3A Flat Rate Scheme (FRS)

19.3A.1 How FRS works

The FRS offers small businesses an alternative to the normal transaction based method of VAT accounting. The main benefit is the time saved keeping VAT records and calculating the VAT payable to HMRC.

When authorised to use the FRS you do not have to identify and record the VAT on your sales and purchases to calculate the VAT you owe to HMRC. You record the VAT inclusive total of all your business supplies - including exempt supplies - and apply the flat rate percentage to it in each period. The result is the VAT you owe to HMRC. Input tax is not normally claimed by businesses on the scheme, as an allowance for it is built into the flat rates.

19.3A.2 Eligibility to join the scheme

The scheme is open to small businesses whose VAT exclusive annual taxable turnover does not exceed £150,000. Once on the scheme, businesses can continue to use it until their annual taxable turnover exceeds £230,000.

19.3A.3 Calculation of the flat rate percentage

HMRC calculates the flat rate percentage from the net tax paid by businesses within the different sectors and so the flat rates vary. You should choose the sector that most closely describes your main business activity.

19.3A.4 Advantages and disadvantages

Advantages:

  • no need to separate out gross, VAT and net in your accounts
  • if you are in your first year of VAT registration you can reduce your flat rate by 1%, until the day before the first anniversary of you becoming VAT registered
  • you always know how much of your takings will need to be paid in VAT
  • less chance of mistakes, so fewer worries
  • less work doing the books so you can get on with running your business
  • can be used in conjunction with the annual accounting scheme and has its own version of cash accounting and retail schemes

Disadvantages:

  • you cannot claim input tax, so you could lose out if you regularly receive a VAT repayment under normal VAT accounting
  • the lesser detail of VAT records kept while using the scheme may make it more difficult to monitor whether the scheme is still a help to the business
  • because the flat rates are averages, you may pay more VAT under the scheme than you would under normal VAT accounting

You can find further details about the FRS, including the table of flat rates and an application form, in VAT Notice 733: Flat Rate Scheme for small businesses.

19.4 Keeping copies of VAT invoices

Unless you make retail supplies and issue less detailed VAT invoices (see paragraph 16.6.1) you must keep a copy of all VAT invoices that you issue.

If you are a cash and carry wholesaler (see paragraph 17.2) you must keep a copy of all till rolls and product code lists.

19.5 Recording supplies you make and working out your output tax

19.5.1 General

Note: This sub-paragraph does not apply to supplies that are dealt with under a retail scheme.

You must keep a record of all the supplies that you make in the course of your business. This includes any zero rated or exempt supplies.

This record must contain all the information that must be shown on VAT invoices (see paragraph 16.3). If you issue invoices which give all the necessary details then, as long as you keep copies, you will only need to prepare a summary of your invoices.

This should be in the same order as your copy invoices and should allow you to produce separate totals for each tax period of the:

(a) amount of VAT chargeable on your supplies. If you have to make an adjustment for credits you have allowed your customers (see paragraph 18.2), you should deduct the VAT on these credits from the amount of VAT PAYABLE in your VAT account (see paragraph 19.12) (b) VAT-exclusive value of your standard-rated, reduced-rated and zero-rated supplies (c) value of any exempt supplies you have made (d) amount of VAT due on any:

  • goods you import by post - other than by Data post - with a value of £2000 or less (see also paragraph 19.8.1 (b))
  • services supplied in the UK which you receive from abroad

You should carry this amount forward to the VAT PAYABLE side of your VAT account (see paragraph 19.12).

Under (b) and (c) you should not make any deduction for cash discounts but you should deduct any credits you have allowed in the tax period.

You must also keep a record of:

  • credits allowed to your customers for all supplies that you make (see paragraph 19.6)
  • goods you send out on sale or return, approval or similar terms, showing their respective tax points (see paragraph 14.4)
  • special transactions you are involved in as described in paragraph 19.5.2 and paragraph 19.5.3 below

19.5.2 Goods given away or put to private or other non-business use

If you give away, or put to private or other non-business use, goods which you have acquired or produced in the course of your business, VAT is due on cost and you need record only the:

  • date that the goods were given away, taken, or set aside for non-business use
  • description and quantity
  • VAT-exclusive cost
  • rate and amount of VAT chargeable

19.5.3 Self-supplies

If you And/or Then you should
are a motor manufacturer, vehicle converter or dealer and use motor cars you have produced or acquired in the course of your business (see paragraph 9.2) record for each car the:

- tax point

- value on which VAT is chargeable

- rate and amount of VAT chargeable (see VAT Notice 700/64: motoring expenses
are partly exempt and self-supply certain printed matter follow the rules in Notice 706/1 Self-supply of stationery.
use your own labour to construct a building or civil engineering work or to increase the floor area of an existing building by 10% or more follow the rules in VAT Notice 708: buildings and construction.

19.6 Record of credits allowed to customers

Note: If you use a retail scheme, this paragraph applies only where the credit involves a VAT invoice.

You must keep a record of all credits allowed to your customers for supplies that you make. This includes zero rated and exempt supplies.

If Then your record must
a credit relates to a VAT invoice either show:

- the details listed in paragraph 18.2

- clearly where those details are (for example, by cross-reference to filed copies of credit notes)
you allow credit for a zero rated or exempt supply show the date and amount of the credit and whether it was for an export, a zero-rated supply in the UK or an exempt supply. If filed copies of credit notes provide a complete and easily accessible record then you need not keep a separate record for VAT purposes

See also paragraph 18.2.4 for information on how to account for credit or debit notes you issue or receive.

You must not issue a credit note if you are using a VAT MOSS return to make your declarations and payments on business to consumer digital services. This is because corrections can only be made to the original return and not by making an amendment to a later return.

19.7 Evidence of input tax

19.7.1 General

You must keep all invoices for standard-rated, reduced-rated and zero-rated supplies that you receive for your business. They must be kept in such a way that, given the invoice date and the supplier’s name, they can be easily produced to HMRC.

You cannot use an invoice which is marked ‘pro-forma’ or ‘THIS IS NOT A TAX INVOICE’ as evidence for reclaiming input tax (see paragraph 17.3).

Only a registered person can issue a VAT invoice. There are financial penalties for the unauthorised issue of VAT invoices. If you receive an invoice from an unregistered person and knowingly use it to reclaim VAT, you are committing an offence.

You should have no problem finding out from your suppliers whether they are registered. If you are in any doubt or you are unsure about the validity of a supplier’s VAT invoice, you should phone the VAT: general enquiries helpline.

In your own interest, you should obtain and retain VAT invoices. Without them, you may not be able to reclaim VAT you have been charged.

19.7.2 Purchases from cash and carry wholesalers

If you buy goods from a cash and carry wholesaler you will need VAT invoices to support your claims for input tax.

If the cash and carry wholesaler provides VAT invoices in the form of till rolls and the goods are represented only by product code numbers (see paragraph 17.2), you must get an up to date copy of the wholesaler’s product code list and keep it with the till roll invoices, so that both are readily available for inspection when required.

19.7.3 Imported goods and goods removed from warehouse

You or your agent should make sure that official evidence is obtained, where required, of VAT chargeable on imported goods and goods removed from warehouse. See VAT Notice 702: imports.

This evidence serves the same purpose as a VAT invoice from a registered UK supplier. Without it you may not be able to reclaim tax you have been charged.

The evidence should be annexed or cross-referenced to the relevant invoice from your supplier and both should be retained. For goods acquired from a VAT registered person in another EU member state, you should hold the relevant invoice from the person supplying the goods.

19.7.4 Services received from abroad

If you receive from abroad a supply of any services which are supplied in the UK, you should hold the relevant invoice from the person supplying the services.

19.7.5 Other circumstances

If you are treating as input tax the VAT on goods or services supplied to you:

(a) the invoice can be made out to an employee for subsistence expenses mentioned in paragraph 12.1 and for petrol (see VAT Notice 700/64: motoring expenses) (b) you do not need a VAT invoice for some types of supply if your total expenditure for each taxable supply was £25 or less (including VAT). You must be sure that the supplier was registered for VAT. If in doubt, check with the VAT: general enquiries helpline - this applies to:

  • phone calls from public or private phones
  • purchases through coin-operated machines
  • car-park charges (on-street parking meters are not subject to VAT)
  • a single or return toll charge paid at the tollbooth

However, you need to obtain a VAT invoice, irrespective of the price of each individual toll if:

  • you purchase a book of toll tickets
  • you use a tolled road, bridge or crossing under an arrangement where you pay in advance for your journeys, or you are invoiced in arrears for your journeys, or a combination of the two (for example, if you use an electronic tag or if you are an account customer).

This excludes tolls charged by the:

  • Cleddau Bridge
  • Clifton Suspension Bridge
  • Dartford Bridge
  • Erskine Bridge
  • Forth Road Bridge
  • Humber Bridge
  • Itchen Bridge
  • Mersey Tunnel
  • Tamar Bridge
  • Tay Bridge
  • Tyne Tunnel

19.8 Recording supplies you receive and working out your input tax

19.8.1 General

You must keep a record of all taxable supplies that you receive for your business. This includes any zero-rated supplies you have received.

You must keep this record in such a way that the details of each transaction and the amount of VAT are entered in full or can be easily found by referring to the:

If And Then
you have received invoices and so on which give all the necessary details they are kept in such a way that they can be easily produced if required your record need be no more than a summary of these documents in the same order as you keep them

The summary must allow you to produce separate totals for each tax period of the amount of VAT:

(a) you have been charged on goods and services you have received - including VAT paid or deferred at import or on removal from warehouse. If you have to make an adjustment for credits received from suppliers in the tax period (see paragraph 18.2), you should deduct VAT on these credits

(b) due on:

  • goods imported by post - other than by Data post - with a value of £2,000 or less (see also paragraph 19.5.1 (d))
  • any services which you receive from abroad which are supplied in the UK

This tax can be reclaimed as input tax subject to the normal rules. You should carry forward the total amount of deductible input tax ((a) plus (b)) less any non-deductible items - see paragraph 19.8.2 below) to the VAT DEDUCTIBLE side of your VAT account (see paragraph 19.12).

(c) The VAT-exclusive value of all supplies you have received. This includes goods you have imported or removed from warehouse and any of the services which you have received from abroad which are supplied in the UK. You should not make any deduction for cash discounts but you should deduct all credits you received from suppliers in the tax period.

For example, an add-list would be acceptable as a summary if it shows tax and values separately itemised in the order in which you keep the VAT invoices. Alternatively, you may find the method described in paragraph 19.8.3 more suitable.

However you keep your records they must show the above totals.

You must also keep a record of:

  • credits received from suppliers for all taxable supplies you receive (see paragraph 19.9)
  • supplies you receive for your business on which VAT is not deductible (see paragraph 19.8.2 below)

If you are partly exempt (see paragraph 13.1) you should look at VAT Notice 706: partial exemption. If you acquire or create a capital item for use in your business (see paragraph 13.2), you should also look at VAT Notice 706/2: capital goods scheme. This will tell you what records you need to keep in case a capital goods scheme adjustment becomes necessary.

19.8.2 Non-deductible items

As explained in paragraph 10.3, you cannot reclaim the tax you have been charged on certain supplies that you receive for your business. You must keep a record of any such supplies that you receive. You must not include VAT that you are charged on these items in the total carried to your VAT account.

19.8.3 Cashbook accounting

If it is your normal accounting practice to claim input tax according to the time when you pay your suppliers, you may find it convenient to adapt your cashbook payments record to serve also as a record of the taxable supplies you receive - for example, by including an extra ‘tax’ column.

If you change to this method from another method of accounting, you must exclude any VAT which you have already claimed on a previous return.

If you use a retail scheme, your cashbook figures can also be used to work out the value of the goods you receive for resale provided you:

  • subtract amounts you owe suppliers at the beginning of a tax period
  • add on amounts you owe suppliers at the end of the tax period

19.9 Record of credits received from suppliers

You must keep a record of all credits you receive from your suppliers for any taxable supplies that you receive. This includes standard-rated, reduced-rated and zero-rated supplies.

If a credit relates to Then
a VAT invoice your record must either: - show the details listed in paragraph 18.2 or - show clearly where these details are (for example, by cross-reference to filed credit notes)
a zero-rated supply your record need only show the date and amount of credit. If filed credit notes provide a complete and easily accessible record, you need not keep a separate record for VAT purposes
deductible input tax and you have to make a tax adjustment (see paragraph 18.2) you must adjust your records of supplies you receive and your input tax (see paragraph 19.8.1(a)). Whatever method you use to do this, the nature of the adjustment and the reason for it must be clear from the accounts or supporting documents

If the VAT credits you receive from your suppliers exceed the VAT you were charged on your purchases in any period, you will have a minus figure to enter in the input tax box (box 4) of your VAT Return. You must make it clear that it is a minus figure by:

  • inserting a minus sign before the figure if you use an electronic return (see also paragraph 20.4.2)
  • writing it in brackets if you use a paper VAT Return

Debit notes

If you normally issue debit notes to suppliers from whom credit is due and adjust your commercial records at that stage, you can adjust your input tax records as well.

The debit notes must show similar details to those required for credit notes. If you later receive credit notes from your suppliers, they should be compared with the debit notes and any errors corrected. If you do this, you must make sure that adjustments are made once only, and that the debit and credit notes are not both used as accounting documents.

If you can reclaim all the tax on the supply as input tax and issue a debit note, you do not have to adjust the original VAT charged to you, as long as the supplier agrees that you need not do so. However, if either you or the supplier wishes to adjust the original VAT charge, both of you must do so.

19.10 How to adjust errors on VAT invoices

If the amount of VAT on a VAT invoice you have issued is Then you must account for the
higher than the amount properly due higher amount in your records, unless you correct the error with your customer by issuing a credit note
lower than the amount properly due correct amount of VAT due whether or not you correct the error with your customer (for example, by issuing a supplementary invoice for the amount undercharged)

If the amount of VAT shown on a VAT invoice is too low

And Then
you are unwilling or unable to recover the whole of the balance due from your customer you will have to make a tax adjustment.

The amount of the tax adjustment can be calculated from the total tax-inclusive amount actually charged

If you correct an error in the amount of VAT chargeable with your customer (for example, by issuing a credit note or supplementary invoice to the customer), the correction should be allowed to work through your accounting system. It should then be reflected in an adjusted total of output tax due from you, at the end of the tax period in which the error was corrected.

However, you must not issue a credit note if you are using a VAT MOSS return to make your declarations and payments on business to consumer digital services. This is because corrections can only be made to the original return and not by making an amendment to a later return.

If you issue a credit note or supplementary invoice to correct an error in a VAT invoice, it should bear a reference to the number and date of that VAT invoice and show clearly both the correct and incorrect amounts of VAT.

19.11 How to correct errors on previous returns

Generally, you can only correct errors in accounting periods ending in the last 4 years. Please see sections 4 and 6 of VAT Notice 700/45: how to correct VAT errors and make adjustments or claims for more information about time limits.

However, if you are using a VAT Mini One Stop Shop return to make your declarations and payments on business to consumer digital services, you can only correct errors in accounting periods ending in the last 3 years.

There are two ways of correcting errors you find on previous returns. Before you decide which way to use, you should read VAT Notice 700/45: how to correct VAT errors and make adjustments or claims.

You can adjust your VAT account and include the value of that adjustment on your current VAT return but you can only correct the errors this way if they were not deliberate and:

  • the net value of errors found on previous returns does not exceed £10,000
  • the net value of errors found on previous returns is between £10,000 and £50,000 but does not exceed 1% of the box 6 (net outputs) VAT return declaration due for the return period in which the errors are discovered

Please see paragraph 4.3 of VAT Notice 700/45 for detailed information on how to work out the net value of errors,or, use Form VAT652: notification of errors in VAT returns to inform HMRC of the errors, but do not make an adjustment on a later VAT return. You must use this method if the error was deliberate. Send the Form VAT652 to the address shown in section 4.11 of VAT Notice 700/45.

Interest and penalties

HMRC may charge interest in certain circumstances and may also charge you a penalty. The type of penalty will depend on the accounting period(s) that are in error. These penalties are: ‘Misdeclaration penalty’ and ‘Penalties for inaccuracies’. For more information about default interest and misdeclaration penalty, please see section 27. For more information about Penalties for inaccuracies, please see paragraph 4.1 of VAT Notice 700/45: how to correct VAT errors and make adjustments or claims.

19.12 VAT account

19.12.1 What is a VAT account

For each tax period you must keep a summary of the totals of your output tax and input tax. This is called your VAT account.

You should keep it in a special book or ledger opening. You will find an example of a simple VAT account at paragraph 19.14, but any form of account containing the same information will be acceptable to HMRC. If you are in doubt, ask the VAT: general enquiries helpline for advice.

19.12.2 Making up your VAT account

You make up your VAT account by adding up the VAT in your records at convenient intervals - for example, once a month - and putting the totals in your VAT account with separate headings for VAT deductible and VAT payable.

Under VAT DEDUCTIBLE, you should itemise separately:

Item Taken from records referred to in paragraph
Deductible VAT you have been charged on goods and services you have received 19.8.1(a)
Deductible VAT due on imported goods and on goods removed from warehouse, whether paid or deferred 19.8.1(a)
VAT due but not paid on goods imported by post - other than by Data post - with a value not exceeding £2000 and on services received from abroad where the place of supply is the UK 19.8.1(b)
Over declarations of VAT from previous periods, except those notified in writing by or to HMRC 19.11 and 19.12.3
Any relief allowed from VAT on bad debts 18.5

You should sub-total these entries, then subtract from that sub-total the amount of VAT you have been allowed on credits from your suppliers during the period. The result will be the total VAT deductible for the period.

Under VAT PAYABLE, you should itemise separately:

Item Taken from records referred to in paragraph
Output tax on goods or services supplied by you 19.5.1(a)
VAT due but not paid on goods imported by post – other than by Data post – with a value not exceeding £2,000 and on services received from abroad where the place of supply is the UK 19.5.1(d)
VAT due on self supply 19.5.3
Under declarations of VAT from previous periods, except those notified in writing by or to HMRC 19.11

You should sub-total these entries, then subtract from that sub-total the amount of VAT you have allowed on credits to your customers during the period. The result will be the total VAT payable for the period.

Calculations

Add up separately the VAT DEDUCTIBLE and the VAT PAYABLE, take the smaller amount from the larger and record the difference.

If your calculations result in negative figures, you should show this in the appropriate box on your return. You must make it clear by:

  • inserting a minus sign before the figure if you use an electronic return. (See also paragraph 20.4.2.)
  • writing the figure in brackets if you use a paper return
If the VAT Then the difference is the amount that you
payable is more than the VAT deductible must pay to HMRC
deductible is more than the VAT payable should claim from HMRC

19.12.3 Tax adjustments

Tax adjustments for previous periods that HMRC has notified to you in writing must not be shown in your returns.

These adjustments should not appear in your VAT account unless it forms an integral part of your commercial accounting system. HMRC will provide you with the necessary accounting information at the same time you are notified of a tax adjustment.

19.13 Claims where a declaration or assessment has included too much output tax

If you have over declared output VAT or HMRC has included too much output VAT in an assessment, you can make a claim for a credit.

There is a 4-year time limit on making a claim. The relevant date from which this time limit starts will depend on the circumstances giving rise to the claim.

HMRC will not credit or repay any amount where to do so would result in your unjust enrichment - for example, where you passed the tax on to your customers but are unwilling, or unable, to pass on to them the benefit of the repayment.

You can ask the VAT: general enquiries helpline if you are not sure if you are entitled to a claim. If you are not happy with HMRC’s decision you can ask for a review by an independent officer or appeal to the VAT and Duties Tribunal.

Information on methods of error correction, how to make a claim, time limits and unjust enrichment can be found in VAT Notice 700/45: how to correct VAT errors and make adjustments or claims.

19.14 Example of a VAT account

Period from 1 January 2003 to 31 March 2003

VAT deductible - Input tax   VAT payable - output tax  
VAT you have been charged on your purchases £ VAT you have been charged on your sales £
January 2,215.23 January 2,780.23
February 1,626.47 February 2,305.81
March 2,792.01
6,633.71
March 3302.45
8388.49
VAT allowable on acquisitions 96.85 VAT due on acquisitions 96.85
Net over claim of input tax from previous returns -125.50 Net understatement of output tax on previous returns 719.26
Bad debt relief 96.48 Annual adjustment: Retail Scheme – Apportionment Scheme 1 91.69
Sub-total 6701.54 Sub-total 9,296.29
Less:   Less:  
VAT on credits received from suppliers -27.50 VAT on credits allowed to customers -23.00
Total tax deductible 6,674.04 Total tax payable 9,273.29
    Less total tax deductible 6,674.04
    Payable to HMRC 2,599.25

Remember - there are restrictions to when you can correct net errors by adjusting your VAT account. Please see paragraph 19.11 for details.

20. VAT returns and payment of tax: introduction and completion of returns

20.1 Introduction to returns

You must complete a return for each tax period and send it back to HMRC and pay any VAT due for the period by the due date shown on the return.

This guidance on returns and payments is in 2 sections.

This section explains how to fill in your return, including guidance for both paper and online versions.

Section 21 covers the submission of returns and payment of VAT. It includes information on:

  • default surcharge and the penalties for failing to send in your VAT Return and all the VAT due on time
  • the circumstances in which HMRC will pay a supplement for delaying a repayment that is due to you

You will also find it helpful to read VAT Notice 700/12: how to fill in and submit your VAT Return or the guide How to complete your VAT return box-by-box.

20.2 The VAT Central Unit

The VAT Central Unit (VCU) is responsible for:

  • sending out paper returns at regular intervals to those registered traders eligible to use them
  • processing the completed returns and payments received
  • making repayments when they are due

This is a processing unit not an enquiry centre. You should always take up enquiries on any aspects of VAT with the VAT: general enquiries helpline or the VAT Written Enquiries Team - not with the VCU.

Please quote your VAT registration number at all times when you contact HMRC.

20.3 Receipt and submission of returns

20.3.1 Online returns

Since 1 April 2010 all VAT-registered businesses with a VAT exclusive turnover of £100,000 or more, plus any newly registered businesses (regardless of turnover), must submit their returns online and pay electronically. From 1 April 2012, this requirement was extended to virtually all VAT-registered businesses.

You (or your accountant or other agent) can submit your VAT return online by using either the free HMRC VAT Online service or commercial software. Submitting your VAT Return online offers a range of benefits including:

  • speed - if you’re not already registered to use HMRC online services, going through the online registration and enrolment process (which you only need to do once) takes just a few minutes - you’ll be able to submit your return as soon as you’ve registered and enrolled for VAT services
  • security - all transactions are 100% secure, since they’re encrypted to the highest commercial standards, you’ll get a unique User ID and create a password to keep your details safe and this allows only you - or someone you authorise - to have access to that information
  • convenience - the online service is available day and night, whenever is best for you
  • accuracy - there are automatic checks to help reduce errors meaning there’s less chance of having your return sent back to you to be corrected or for clarification
  • reliability - you don’t have to worry about your return being lost or delayed in the post as you’ll get an on-screen acknowledgment - including a unique submission receipt reference number - when you submit your VAT Return

To enrol for this service go to the VAT returns guidance.

When you enrol for the VAT Online Service, you can arrange to receive free email reminders - HMRC strongly recommends that you do. You will need to provide an email address which HMRC will use to remind you when your VAT Return is due.

If you submit your return online, you must pay any VAT due in full by an approved electronic method. You must allow enough time for the electronic payment to clear to HMRC’s bank account. Please see paragraph 21.3.1.

20.3.2 Paper VAT returns

If you are eligible to use paper VAT returns, the VCU will send you the return, Form VAT 100, at regular intervals. You must complete each return and send it back to the VCU - not to a VAT office. At the same time you must pay the VAT due in full.

20.3.3 ‘Nil’ returns

You must still complete the form, even if you have not traded at all during the whole period covered by the return.

If you Then
complete a paper return you should write ‘NONE’ in every box, sign the declaration and send it to the VCU by the due date.
submit your return online you should enter 0.00 in all boxes (boxes 3 and 5 will be automatically completed for you).

If you have not received a return or you spoil or mislay one, you can get a duplicate from the VAT: general enquiries helpline.

Remember that if you are away from your place of business, you must arrange for VAT returns and payments to be sent to the VCU at the proper time.

20.4 How to fill in your VAT Return

20.4.1 General

VAT Notice 700/12: how to fill in and submit your VAT return, or the web guide How to complete your VAT return box-by-box will help you complete your VAT returns correctly.

When you fill in your return, you should always check your figures for arithmetical accuracy. You will find that the checklist in Filling in your VAT return will also help you check that your return is complete and correct.

Remember if you are unsure about what to do, it is in your own interest to ask for advice at the time, to save HMRC having to send you queries. If you can’t find the answer to your question on this website then ring the VAT: general enquiries helpline.

20.4.2 Online VAT returns

Submitting your return online is quick, convenient, reliable and secure and there is plenty of help available - see the VAT returns guidance. You do not have to complete every box on the online return - boxes 3 and 5 are calculated automatically. Please check that you have entered the correct figures before you click on ‘submit’, as you can’t amend the return online after you’ve submitted it.

The online VAT Return form only accepts figures, a decimal point and a minus sign.

If Then
for any reason, you have a minus figure to enter in box 1 or box 2, or the figure to be entered in box 4 represents an amount due to HMRC instead of an amount to be reclaimed you must insert a minus sign before that figure

You do not have to complete every box on the electronic VAT return - it calculates boxes 3 and 5 automatically.

Remember, the VAT: general enquiries helpline will always help if you are in difficulty. If you are unsure about what to do, it is in your own interest to ask for advice at the time, to save HMRC having to send you queries.

20.4.3 Paper VAT returns

You need to make it clear when you are using minus figures on the return:

If Then you must
for any reason, you have a minus figure to enter in box 1, box 2 or box 3, or

the figure to be entered in box 4 represents an amount due to HMRC instead of an amount to be reclaimed
write it in brackets
Remember  
Do fill in clearly in ink all the boxes where you are asked to give information, writing ‘none’ where necessary
Don’t write anything else on your return, or

send any correspondence with your return

If you have not received a return or you spoil or mislay one, do not be tempted to alter another VAT return form or send your VAT declaration in another way. You should contact the VAT: general enquiries helpline immediately and ask for a replacement, but please remember that HMRC cannot provide paper versions of any returns that you are required to submit online.

20.5 Tax periods

20.5.1 General

The period covered by the return is called a tax period (but on formal documents it may be referred to as a ‘prescribed accounting period’).

The standard tax period is 3 months. To spread the flow of returns evenly over the year, you will have been allocated to one of 3 groups of tax periods when you were registered.

Group Tax periods end on the last days of
1 June, September, December and March
2 July, October, January and April
3 August, November, February and May

You can apply to have the tax periods which fit in with your financial year. If the transfer of a going concern results in a new registration, you can apply to retain the tax periods of the previous registration. This also applies if a change in the circumstances of a registered business makes a new registration necessary (see paragraph 26.2).

You should send your application to the VAT Registration Service quoting your VAT registration number and the dates of your financial year.

20.5.2 Monthly tax periods

You can ask for monthly tax periods if you normally expect to receive repayments. Remember, if you do have monthly tax periods, you will have to make 12 returns a year instead of 4. You cannot have monthly tax periods if you use the VAT MOSS Online.

If you have monthly tax periods and you change from receiving repayments to making payments, you may have to change to the standard 3 month tax periods.

20.5.3 Non-standard tax periods

If your accounting system is not based on calendar months, you can apply in writing to the VAT Registration Service to have tax periods which fit your system more closely.

If you have been given approval to use special tax periods, HMRC will send you a new VAT registration certificate. Your VAT returns will show the dates of the approved special periods.

Whatever your tax periods, you must not alter the dates shown on the return.

20.6 Annual accounting scheme

20.6.1 Eligibility

This scheme allows eligible businesses to submit one VAT Return a year instead of the usual 4. You will have to make interim payments by electronic means based on your actual or estimated annual VAT liability.

The scheme is open to businesses who expect to have taxable supplies of up to £1,350,000.

If you use the VAT MOSS online service to submit your returns and payments, you are not eligible to use the annual accounting scheme.

20.6.2 Interim payments

Monthly

The normal pattern is to pay 9 instalments, which are calculated as follows:

  • if you have been registered for 12 months or more you will make 9 interim payments of 10% of your previous year’s VAT liability
  • if you have been registered for less than 12 months you will make 9 interim payments of 10% of your expected VAT liability

Quarterly

If it better suits your business needs, you can apply to make 3 quarterly instalments. These are calculated as follows:

  • if you have been registered for 12 months or more, each quarterly instalment will be 25% of your previous year’s VAT liability
  • if you have been registered for less than 12 months, each quarterly instalment will be 25% of your expected VAT liability
  • payment pattern you use, you have 2 months following the end of your annual accounting year to send in your return and balancing payment

20.6.3 Advantages of the scheme

The main advantages of the scheme are:

  • it helps you smooth out your cash flow by paying a set amount each month, or quarter
  • you can make additional payments as and when you can afford to
  • you only need to fill in one VAT return each year, instead of 4
  • you get 2 months to submit your annual VAT return and balancing payment, instead of one
  • you can align your VAT year with the end of your business tax year, to simplify your end of year routines

20.6.4 Points to consider

You will also need to consider the following:

  • repayment traders will not have to make interim payments but will not get a repayment until the annual return is sent in
  • you must continue to keep your business records on a regular basis, do not try to write them all up at the end of the year

Further details can be found in VAT Notice 732: annual accounting.

21. VAT returns and payment of tax: submission of returns and payment

21.1 Prompt submission of returns and payments

You must make sure that your VAT Return is received and any payment due clears HMRC’s bank account by the due date shown on the return. If you fail to do this you could be liable to a default surcharge (see paragraph 21.2.2 below). Remember that if you are away from your place of business, you must make arrangements so that your VAT return is received and payment clears to HMRC’s bank account on time.

For more information about deadlines see the VAT returns guidance. To help you work out when you need to set up your payments (such as setting up a Direct Debit Instruction) or when you need to make your VAT payments, you can use the VAT payment deadline calculator.

Prompt and correctly completed returns and payments are the best way of avoiding trouble. If you foresee any difficulty, your best course is to contact the VAT: general enquiries helpline to explain the circumstances in advance.

21.2 Late, incomplete or incorrect returns and payments

21.2.1 Assessments

If you fail to make a return when it is due or make an incomplete or incorrect return, HMRC has powers to assess, to the best of its judgement, the amount of VAT you owe.

HMRC doesn’t make assessments more than 4 years after the end of the relevant tax period unless there are special circumstances, such as fraud. In these special cases the period of assessment is limited to 20 years. If HMRC issues an assessment which is later found to be too low, HMRC may issue an additional or supplementary assessment, subject to assessment time limits.

If you repeatedly pay assessments instead of sending in VAT returns, then HMRC will increase the amount for which you are assessed with each assessment. HMRC also has powers to assess for recovery of any refunds of VAT and statutory interest that were wrongly paid or credited to you.

21.2.2 Default surcharge

You are required by law to submit a VAT Return and to make sure that payment of the VAT due has cleared to HMRC’s bank account by the due date. If you fail to do so, you will be in default and you may have to pay a surcharge. A surcharge is an additional amount you may have to pay if you don’t pay your return on time.

(a) Surcharge Liability Notices

You will not have to pay a surcharge the first time you default within any 12 month period but HMRC will send you a Surcharge Liability Notice. This Notice will tell you that if you default again in an accounting period ending within a specified period known as the surcharge period, you may have to pay a surcharge. The surcharge period will be extended each time you default.

(b) Calculation of surcharge

The surcharge will be 2% of VAT unpaid on your VAT Return at due date and the rate will increase to 5%, 10% and 15% if you continue to pay late within the surcharge period.

If you don’t send in your return HMRC will assess the amount you owe and the surcharge will be calculated as a percentage of that amount. If you send in your VAT Return after an assessment has been issued, the amount of the surcharge will be recalculated to reflect the VAT shown as due on the return (whether or not you send payment for the VAT due with your return).

HMRC will not issue a surcharge at the rates of 2% or 5% if the surcharge is for less than £400 but will:

  • extend your surcharge period
  • increase the rate of surcharge if you default again within the surcharge period.

HMRC will issue you with a surcharge of at least £30 if you reach the 10% or 15% rates.

Please remember:

  • surcharges are calculated on the amount of VAT unpaid at the due date - you may be able to reduce the size of a surcharge or avoid a surcharge altogether by paying as much as you can by the due date
  • if you are finding it difficult to pay your VAT on time contact HMRC’s Business Payment Support Service before your payment is due - if you do this, you may get extra time to pay your VAT and avoid surcharges altogether
  • put your VAT registration number in the first part of the payment reference section of your payment instruction
  • allow enough time for payment to clear to HMRC’s bank account by the due date - bank working days are Monday to Friday excluding bank holidays
  • faster Payments (for phone and internet banking) are normally received on the same (or next) day as you arrange payment and can be received on bank holidays and weekends - this means that you can arrange payment on the day that your VAT Return is due, but – before you do this - it is important to contact your bank or building society to confirm the services available to you, any daily value limits and their latest cut off times
  • CHAPS payments can be made on bank working days and will reach HMRC on the same day provided you arrange the payment within the time specified by your bank (usually between 9am and 3pm)
  • you should allow 3 bank working days for payment by BillPay, Bacs Direct Credit or Bank Giro to reach HMRC (longer if the due date falls on a bank holiday or a weekend)
  • if you pay by cheque the payment is treated as received when cleared funds reach HMRC’s bank account - not the date when the cheque is received

If you disagree with the decision to charge a surcharge or how the amount of surcharge has been calculated you can:

  • ask HMRC to review your case
  • have your case heard by an independent tax tribunal

You can find further information in VAT Notice 700/50: default surcharge.

21.2.3 Approval to use estimated figures on VAT returns

If you know that you will be unable to make an accurate return, you should write to the VAT Written Enquiries Team as soon as possible. If HMRC considers that you have a good reason, you may, exceptionally, be allowed to estimate your input tax and/or output tax.

If you are allowed to use estimated figures and your return and VAT reach HMRC by the due date, you will not be in default. If you ask for approval to use estimated figures once the due date is passed, HMRC will consider your request but it will not affect any default which has already been recorded.

You must establish the correct amount of VAT. Any resulting adjustment must be included on the VAT return for the next period. If HMRC agrees that this is not possible, you may include any revisions in the following period at the latest.

21.2.4 Failure to pay

If you think you may not be able to pay your VAT on time, it is important that you contact HMRC right away. Who you should contact depends on your particular circumstances and this is explained in the guide Paying HMRC. You should also make urgent contact with your bank and your financial adviser.

HMRC has powers to recover money owed if you neglect or refuse to pay it, by taking distraint (seizing your goods and selling them at auction in settlement of the tax, interest and costs). In Scotland this is action is termed ‘attachment’. HMRC may also take County Court Proceedings or insolvency proceedings.

21.3 Methods of payment

21.3.1 Online VAT returns

Under UK law it is now mandatory to file VAT returns online. When filing online, you must pay by one of the approved electronic methods, listed below. You cannot pay by cheque in the post.

You can pay by Direct Debit, Debit or Credit card over the internet using the BillPay service, Bacs Direct Credit, Faster Payments, Internet or Phone Banking, CHAPS, Bank Giro Credit. You can pay by standing order if you have been accepted for the Annual Accounting Scheme or you make Payments on Account.

You can find more information about electronic payment, including how to set up and use each approved payment method in the pay your VAT bill guidance.

Paying by an approved electronic method will give you up to seven extra calendar days to submit your return and pay your VAT, unless you make annual returns or Payments on Account (and submit quarterly returns). The extended due date will be shown on your online VAT return and you must make sure that cleared funds reach HMRC’s bank account by this date. (The exception to this is online Direct Debit (DD) - if you pay by DD, then HMRC will automatically collect your payment on the third bank working day after the date shown on your return.) If your due date falls on a bank holiday or weekend, your payment must clear HMRC’s bank account before then (unless you use the Faster Payments service - Faster Payments can be received on bank holidays and weekends).

If your payment arrives late you may be liable to a surcharge for late payment. To make sure that your payment clears HMRC’s account in time, you should check with your bank or building society to find out:

  • if there are any single or daily limits to how much you can transfer from your account
  • is there a cut-off time for processing payments on the same day
  • how long your payment will take to clear into HMRC’s bank account

Checking these details will help to make sure that you do not incur any unnecessary late payment surcharges.

21.3.2 Other options

To ensure compliance with the European Convention on Human Rights, the UK Government has provided the following alternatives:

  • approved telephone filing as an alternative form of electronic filing available for use by authorised businesses (businesses that satisfy HMRC that they meet certain criteria)
  • an exemption from electronic filing (including telephone filing) for businesses which satisfy HMRC that it is not reasonably practicable for them to use the other options - such businesses will be able to file on paper

Nevertheless,whatever form of filing is used, HMRC recommends that you make your VAT payments electronically using one of the methods described in paragraph 21.3.1 above. Paying by an approved electronic method will give you to up to 7 extra calendar days to submit your return and pay your VAT, unless you make annual returns or Payments on Account (and submit quarterly returns).

If you are not required to file your return online and pay electronically you can still pay by posting HMRC a cheque, if you wish. Cheque payments made by post are treated as being received on the date when cleared funds reach HMRC’s bank account - not the date when the cheque is received. This means that you must allow sufficient time for the payment to reach HMRC and clear into HMRC’s bank account, no later than the due date shown on your paper VAT Return. A cheque takes 3 bank working days to clear. Bank working days are Monday to Friday excluding bank holidays. If your cheque payment does not clear by the due date shown on your paper VAT return, you may be liable to a surcharge for late payment. If paying by post please:

  • make your cheque payable to ‘HMRC only’ followed by your 9-digit VAT registration number and send it with your return using the pre-addressed envelope provided by HMRC
  • do not fasten the cheque with paper clips or staples or in any other manner

21.3.3 HMRC’s bank details

If you pay by BACS or CHAPS your bank will need to quote your VAT registration number as your reference number and make payments to:

Barclays Bank Plc
1 Churchill Place
London
United Kingdom
E145HO

Sort code: 08 32 00
Account no: 11963155

21.4 Methods of repayment

HMRC will make repayments of VAT by the Bacs Direct Credit.

To receive repayments by this quick and secure method, please make sure that you have advised the VAT Registration Service of your bank details in writing. This is a requirement on application for VAT registration.

In exceptional circumstances where you do not have a bank account, HMRC will continue to make repayment by payable order.

The same repayment method applies whether you use the paper or electronic VAT Return.

Note: HMRC cannot make repayments claimed by you unless all your VAT returns have been submitted. If there are any outstanding tax liabilities, HMRC will offset them against the amount of your claim.

21.5 Dealing with amounts of less than £1

If the net VAT payable calculated to the nearest penny, is less than £1, no payment need be made. Similarly, if the net VAT repayable is less than £1, there will be no repayment.

Amounts under £1 should not be carried forward to the next return.

21.6 Delayed repayments and repayment supplement

Repayment supplement is a type of compensation HMRC will pay to you in certain circumstances if payment of your claim is not authorised within 30 days of the of the receipt of your VAT Return.

21.6.1 Scope of repayment supplement

Repayment supplement is only paid in respect of undue delays in authorising repayments claimed on a VAT return or a section 33/33A claim.

It does not apply to delays in making other refunds such as claims made through a voluntary disclosure.

21.6.2 How the 30 day period is calculated

Normally, the 30-day period starts on the day that a return is received. However, if HMRC receives your return before the end of the accounting period, the 30 day period will begin at the end of the accounting period.

When HMRC calculates the time taken to authorise your claim, the law allows HMRC to deduct the time taken to:

  • make reasonable enquiries to be satisfied that your claim is accurate
  • correct errors or omissions on your VAT return

21.6.3 Qualifying for a supplement

You will qualify for repayment supplement if, after HMRC has made deductions for enquiries, there are still more than 30 days between the date of receipt of your return and the date payment was authorised, but you will not qualify for repayment supplement if:

  • your return is received late
  • at the time your VAT Return is received, you have returns missing for earlier periods
  • you have made errors on the return which, when corrected, reduce the net tax claimed by more than 5% or £250, whichever is the greater

21.6.4 Rate of supplement and notification of amounts

If all the qualifying conditions are met, HMRC will pay repayment supplement automatically at the same time as payment of your return is authorised.

The supplement is calculated at:

  • 5% of the amount claimed on your VAT Return
  • £50

Whichever is the greater.

You can find further information in VAT Notice 700/58: treatment of VAT repayment returns and VAT repayment supplements.

21.7 Payments on Account scheme

The Payments on Account regime (POA) requires large VAT payers who submit returns quarterly to make payments on account of their quarterly VAT liability.

If the total annual VAT liability of your business exceeds £2 million (including import VAT and goods ex-warehouse) you will be liable to make payments on account.

HMRC will advise you:

  • when you become liable to make POAs
  • how much your payments on account will be
  • how the payments have been calculated
  • when they are due

You will find full details of POA in VAT Notice 700/60: payments on account.

22. Supplies made by or through agents: general rules

22.1 Introduction to supplies involving agents

The information on this subject is in 4 sections, which explain how you should account for VAT if you:

  • use the services of an agent
  • act as an agent in arranging supplies of goods or services

It reflects the revised treatment of supplies of goods made through agents from 1 June 1995, resulting from the implementation of Article 5.4(c) of the European Community Sixth VAT Directive.

Section Subject
22 General rules
23 Arrangements for invoicing
24 EU and international supplies involving UK undisclosed agents
25 Other situations

22.2 General information about agents

You are an agent if you act for, or represent, someone else (your principal) in arranging supplies of goods or services. The supplies that you arrange are made by - or to - the principal you represent.

Principals cannot avoid their liability to account for VAT on their supplies or to pay VAT on their purchases by using an agent.

Persons who carry on a business on their own account sometimes use the words ‘agent’ and ‘agency’ to describe their trading style. For example:

  • distributors, sole concessionaires and motor agents usually trade as principals on their own account
  • employment agencies and travel agents are not usually agents in all their activities

On the other hand, some people who normally trade as principals, such as solicitors and architects, may occasionally arrange supplies as agents for their clients.

To act as an agent, you must have agreed with your principal to act on their behalf in relation to the particular transaction concerned. This may be a written or oral agreement, or merely inferred from the way you and your principal conduct your business affairs. Whatever form this relationship takes:

  • it must always be clearly established between you and your principal, and you must be able to show to HMRC that you are arranging the transactions for your principal, rather than trading on your own account
  • you will not be the owner of any of the goods, or use any of the services which you buy or sell for your principal
  • you will not alter the nature or value of any of the supplies made between your principal and third parties

If you are an agent who acts on behalf of an overseas trader, you will also need to look at VAT Notice 702: imports and VAT Notice 703: export of goods from the UK.

22.3 How agents are involved with VAT

As an agent, you will usually be involved in at least two separate supplies at any one time:

  • the supplies made between your principal and the third party
  • the supply of your own services to your principal, for which you will charge a fee or commission - the normal VAT rules apply to your services as an agent

It is important to distinguish between these separate supplies.

22.4 Liability of supplies

The liability of the supply of your own services to your principal will not always be the same as the liability of the supply between your principal and the third parties.

22.4.1 Selling agents

If you are a selling agent and the supply you are arranging on behalf of your principal is taxable, your supply of services to your principal in arranging that supply is standard-rated. However, if the supply you are arranging for your principal is exempt from VAT, your supply of services in arranging that supply may also be exempt.

Further information about exempt supplies is in section 29 of this notice. You should consult the notice relevant to the type of supply made by your principal or the third party to determine whether your own supply to your principal is within the exemption. If, having read the notice, you remain unsure of the liability of your services, you should consult the VAT: general enquiries helpline.

22.4.2 Buying agents

If you are a buying agent and the supply you are arranging from the third party to your principal is taxable, your supply of services to your principal in arranging that supply is standard-rated. However, if the supply you are arranging by the third party to your principal is exempt, your supply to your principal in arranging that supply may also be exempt.

Further information about exempt supplies is in section 29 of this notice. You should consult the notice relevant to the type of supply made by your principal or the third party to determine whether your own supply to your principal is within the exemption. If, having read the notice, you remain unsure of the liability of your services, you should consult the VAT: general enquiries helpline.

22.5 Agents acting in the name of their principals

As an agent, you may sometimes take a minor role in a transaction, and simply introduce your principal to potential customers or suppliers (third parties).

At other times you may be more closely involved. You might:

  • receive or deliver goods
  • hold a stock of goods for your principal
  • make or receive payment

However, provided that the invoicing for the supply is between the principal and the customer, the only supply for VAT purposes being made by you will be the provision of your services to your principal.

22.6 Agents who act in their own name

You may sometimes be empowered by your principals to enter into contracts with a third party on their behalf. In such cases, particularly if your principal wishes to remain unnamed, you may receive and issue invoices in your own name for the supplies concerned.

An agent who acts in such a capacity is usually referred to as an undisclosed agent or a commissionaire.

In commercial terms, the transaction you arrange as an agent remains between your principal and the third party involved. However, you should note that these rules apply to supplies of goods and services:

Goods

If… Then…
you issue an invoice in your own name for a supply of goods which you arrange for your principal for VAT purposes only, you must treat the transaction as though it was both a supply to you and a supply by you.

Services

If you are an agent arranging a supply of services and… Then…
both you and the supplier are registered for VAT, and

the supplies are taxable
you may treat yourself as both receiving and supplying those services.

If you do this, you will be regarded as acting in your own name and treated for VAT purposes in the same way as an agent arranging supplies of goods, as above.

In both circumstances above, you are liable to account for VAT on the supply of the goods or the services, as well as on your own supply of services to your principal. But you may also reclaim as input tax any VAT charged on the supply made to you. As you do not alter the nature or value of your principal’s supply, the amount of input tax reclaimed will normally be equal to the output tax you account for on that supply.

Further Details  
You must not: reclaim input tax under this procedure before you have accounted for the relevant output tax.
You must: include the value of the supply in your VAT account and on your VAT Return as a supply both made, and received, by you.

It is important to remember that the VAT treatment of the supply you arrange does not affect your liability to account for VAT on your own supply of services to your principal.

However,

If you are … Then you…
an undisclosed agent involved in international supplies of goods or services should read section 24 for information on the revised VAT treatment operated from 1 July 2000.
a UK undisclosed agent involved with domestic supplies should also read section 24 for information on the option which allows you to use the same revised VAT treatment, which is intended to ease VAT accounting.
arranging supplies of second-hand goods, antiques, works of art or collectors’ items may be able to choose to use the Margin Scheme and include the value of your services in calculating the VAT due -

further details are in VAT Notice 718: the VAT Margin Scheme and global accounting for second-hand goods, antiques, works of art and collectors’ items.
partly exempt (see paragraph 13.1), and are subject to these arrangements should write to the VAT Written Enquiries Team, since this may have an effect on your partial exemption method.

These arrangements cannot be used for supplies which are for the benefit of travelers, for example, supplies of accommodation or passenger transport. You can find further details in VAT Notice 709/5: tour operators margin scheme.

22.7 Registration

If you are an agent, and the value of your taxable supplies is above a certain limit you must register for VAT. The value of your taxable supplies includes both the value of your taxable supplies to your principal and the value of any taxable supplies which you make in your own name.

VAT Notice 700/1: should I be registered for VAT? provides further information. VAT Notice 700/1 also explains how you can register voluntarily if the value of your taxable supplies is below the relevant limit. The relevant limits are set out in the supplement to 700/1.

23. Supplies made by or through agents: invoicing arrangements

23.1 Invoicing for supplies made through a selling agent not using a margin scheme

23.1.1 Agents acting in the name of their principals

(see paragraph 22.5)

If all the following apply… Then all the following also apply…
your principal is registered

their supply to the third party is taxable

and you are registered
your principal must issue the VAT invoice made out to the customer and send it either direct to the customer, or through you to pass on to the customer,

and you need account for VAT only on your supply of agent’s services to your principal.
your principal is not registered but you are registered no VAT is due on the supply arranged by you but you must:

- account for VAT on your supply of agent’s services to your principal, and

- possess evidence that you are arranging the supply on behalf of your principal. The supply should be readily distinguishable in your records from supplies on which VAT is charged.

This evidence may take the form of a standing agreement between you and your principal (the supplier), or it may be a signed declaration from your principal. This declaration should give the principal’s name and address, and state that the principal is not a VAT registered person making a supply of the specified goods/services in the course of business.

23.1.2 Agents registered for VAT and acting in their own name

(as defined in paragraph 22.6)

You may, if you wish, adopt the accounting arrangements set out in section 24, but if you choose not to do so you should account for VAT in accordance with this paragraph.

If… Then…
your principal is registered for VAT, and their supply to the customer is taxable your principal must issue a VAT invoice to you for the actual price paid by the buyer, and you may then reclaim any VAT as input tax.

As an alternative, you can use the self-billing procedure described in paragraph 17.4.1, if you meet the conditions set out in VAT Notice 700/62: self billing.
the customer is registered for VAT you must account for output tax on the onward supply to the customer, and

you must issue a VAT invoice to the customer, and

you must also account for VAT on the value of your own supply of services in arranging the supply on behalf of your principal.

This example illustrates the accounting procedure:

A VAT registered person supplies standard-rated goods or services for £100 plus VAT to another VAT registered person. The supplier uses an agent who acts in their own name. The agent takes a commission of 10%.

The seller must issue a VAT invoice to the agent showing:  
Goods/services £100.00
20% VAT £ 20.00
Total £120.00

The seller accounts to HMRC for £20.00 output tax. The agent may reclaim £20.00 as input tax.

The agent must issue a VAT invoice to the buyer showing:  
Goods/services £100.00
20% VAT £ 20.00
Total £120.00

The agent accounts to HMRC for £20.00 output tax. The buyer may reclaim £20.00 as input tax subject to any partial exemption considerations (see paragraph 13.1).

The agent must also issue a VAT invoice when making a charge to the principal (the seller) for agent’s services showing:  
10% commission £10.00
20% VAT £ 2.00
Total £12.00

The agent accounts to HMRC for £2.00 output tax. The seller can reclaim input tax of £2.00.

In practice, the amount of money that passes between the agent and the principal in this example might only be £108.00, since the agent may deduct commission from the amount collected from the buyer, paying the balance to the principal. However, the full VAT invoicing procedure must still be followed.

23.2 Invoicing for supplies obtained through a buying agent not using a margin scheme

23.2.1 Agents acting in the name of their principal

(see paragraph 22.5)

If all the following apply… Then all the following apply…
the supplier is registered for VAT

the supply you are arranging is taxable, and

you are VAT registered
the supplier should issue the VAT invoice made out to your principal and send it either direct, or through you, for you to pass on to your principal and

you need account for VAT only on your supply of agent’s services to your principal.
the supplier is not VAT registered, and

you are VAT registered
no VAT is due on the supply you have arranged,

but you must account for VAT on the value of your own services to your principal.

23.2.2 Agents registered for VAT and acting in their own name

(as defined in paragraph 22.6)

You may, if you wish, adopt the accounting arrangements set out in section 24 but if you choose not to do so you should account for VAT in accordance with this paragraph.

The supply is treated as made both to you and by you as agent.

If… Then…
The supplier is VAT registered the supplier will issue a VAT invoice to you, and you may then reclaim the VAT as input tax subject to any partial exemption considerations (see paragraph 13.1), and

you must account for output tax on your onward supply to the buyer (your principal) and on the value of your own services in arranging the supply to your principal.
your principal is VAT registered you will need to issue a VAT invoice for both supplies.

Your principal should always be able to know the price you paid in obtaining the supply.

This example illustrates the accounting procedure:

A VAT registered person uses an agent to buy standard-rated goods or services from another VAT registered person. The amount charged by the supplier is £100 plus VAT. The agent is registered for VAT and charges £15.00 for services.

The supplier issues a VAT invoice to the agent showing:  
Goods or services £100.00
20% VAT £ 20.00
Total £120.00

The supplier accounts to HMRC for £20.00 output tax. The agent may reclaim £20.00 as input tax.

The agent must issue VAT invoices to the principal both for the supply arranged and for the supply of agent’s services. Either separate VAT invoices can be issued, or both transactions may be shown on the same VAT invoice. If the same VAT invoice is used, then the amount charged for the goods/services must be shown separately from the amount charged as commission:

Example  
Goods or services £100.00
20% VAT £ 20.00
Fee £ 15.00
20% VAT on fee £ 3.00
Total £138.00

The agent should account to HMRC for £23.00 output tax.

24. EU and international supplies involving UK undisclosed agents

24.1 Note for UK undisclosed agents involved in domestic supplies

If you are a UK undisclosed agent involved in domestic supplies, the difficulties outlined in this section may not apply and there is no intention to disturb the current commercial arrangements where you may be invoicing your principals for a separate supply of your own services, as described in paragraph 22.6.

However, if you want to, you may adopt the revised VAT treatment set out in this section for your domestic transactions.

24.2 VAT treatment of supplies involving UK undisclosed agents

24.2.1 Introduction

This section deals with the revised VAT treatment of international supplies of goods or services made through UK undisclosed agents, operated from 1 July 2000. It also gives information on the option which allows UK undisclosed agents involved in domestic supplies also to use the revised VAT treatment.

The revised treatment follows representations from the trade and their advisers, and has been agreed after consultation with members of the VAT Consultative Committee and the VAT Practitioners Group. The changes put the VAT treatment of UK undisclosed agents on the same footing as that for commissionaires elsewhere in the Community.

The revised policy is intended to ease problems faced by UK undisclosed agents, which are caused by differences between UK common law on agency and Roman civil law concepts, briefly summarised below. The problems arise where undisclosed agents are involved in non-EU or intra-Community supplies.

Undisclosed agents take part in a supply of goods or services while acting in their own name but they are supplying the goods or services on behalf of another. This means the third party to the transaction is unaware of the involvement of an agent.

24.2.2 Problems arising with undisclosed agents

Before the introduction of the revised VAT treatment, there was potential distortion of competition between UK undisclosed agents and commissionaires, who are seen as principals under Roman law in other member states.

Commissionaires take part in the supply, with their commission included as a mark-up in the price. However, in UK law, there is an underlying supply between the principal and the customer and a separate supply of agents’ services to their principals. This meant that, unlike commissionaires, UK agents had to charge VAT to their non-EU principals. If the non-EU principal was unwilling to register in the UK to recover this, the agent may have had to bear the VAT cost.

There was also potential for confusion about the place of supply of services. For example:

  • where undisclosed agents were involved in a supply taking place where the supplier is based, there may have been uncertainty about the place of the onward supply by the agents
  • in the case of services subject to reverse charge, there may have been uncertainty about who should account for the reverse charge

Different values of supplies through UK undisclosed agents and commissionaires resulted in difficulties and mismatches on EC Sales Lists and declarations made for the purposes of international trade statistics (Intrastat).

24.2.3 The revised VAT treatment

The revised treatment applies only to supplies made on or after 1 July 2000. From this date, agents involved in non-EU or intra-Community supplies, who bring themselves within the terms of section 47 VAT Act 1994 by acting in their own name, are treated as principals for VAT purposes and seen as taking a full part in the underlying supply of any goods or services.

Consequently, as the agent is taking a full part in the supply, they are no longer recognised as making a separate supply of their own services to their principal and the commission they retain is seen as subsumed in the value of the onward underlying supply.

This revised treatment is for VAT purposes only. It has no impact on the legal status of agents or the way they are treated for the purposes of other taxes or legislation.

24.2.4 Impact of the revised VAT treatment

(a) Goods imported or acquired into the UK

Note: For the purposes of the following illustration, the price paid by the final customer is £100 the commission retained by the agent is £20, and the money passed back to the principal is £80: all net of VAT.

If you are a UK undisclosed agent… Then the VAT value at…
importing goods on behalf of a non-EU principal importation is decided by the Customs rules as previously, and will not change.
acquiring goods from a principal in another member state acquisition is £80 by virtue of section 20(3) VAT Act 1994 based on the value of the invoice raised by the EU principal to you. You are responsible for Intrastat declarations and must account for acquisition tax.

As a UK undisclosed agent that is treated as a principal under the revised VAT treatment, you will be entitled to recover import/acquisition VAT, subject to the normal rules. You will then:

  • make an onward supply in your own name to your customer for £100
  • account for any output tax due

Your commission of £20 will be seen as subsumed in the value of your onward supply of the goods, and you are no longer regarded as making a separate supply of your own services to your non-UK principal.

You may treat costs incurred in the UK, such as warehousing and handling, as supplies to you and you may recover the input tax on them, subject to the normal rules.

(b) International services

If you are a UK undisclosed agent involved in international services and you act in your own name under section 47(3) VAT Act 1994, you are treated as a principal in the same way as elsewhere in the EU.

The services are seen as supplied to you as though you are a principal, and supplied on by you. This means that you will be treated as taking a full part in the supply chain.

As in the case of imported goods above, your commission is seen as subsumed in the value of the onward supply. You are no longer regarded as making a separate supply of your own services to your principal.

From 1 July 2000, section 47(3) applies in this way in all cases where agents act in their own name in relation to international services. It applies to services being supplied both to and from the UK.

If you make supplies of arranging or facilitating a supply of services, see VAT Notice 741A: place of supply of services.

25. Supplies made by or through agents: other situations

25.1 Disbursements for VAT purposes

25.1.1 Introduction and conditions for VAT disbursements

It is the practice in some trades and professions for some or all of the costs incidental to a supply, such as travelling expenses, to be described as disbursements and shown or charged separately on the invoice issued to the client. In many cases, these items do not qualify to be treated as disbursements for VAT purposes.

If… Then…
these costs have been incurred by suppliers in the course of making their own supply to their clients they must be included in the value of those supplies when VAT is calculated.

However,

If… Then…
you merely pay amounts to third parties as the agent of your client and debit your client with the precise amounts paid out you may be able to treat them as disbursements for VAT purposes and exclude these amounts when you calculate any VAT due on your main supply to your client.

You may treat a payment to a third party as a disbursement for VAT purposes if all the following conditions are met:

  • you acted as the agent of your client when you paid the third party
  • your client actually received and used the goods or services provided by the third party (this condition usually prevents the agent’s own travelling and subsistence expenses, phone bills, postage, and other costs being treated as disbursements for VAT purposes)
  • your client was responsible for paying the third party (examples include estate duty and stamp duty payable by your client on a contract to be made by the client)
  • your client authorised you to make the payment on their behalf
  • your client knew that the goods or services you paid for would be provided by a third party
  • your outlay will be separately itemised when you invoice your client
  • you recover only the exact amount which you paid to the third party
  • the goods or services, which you paid for, are clearly additional to the supplies which you make to your client on your own account

All these conditions must be satisfied before you can treat a payment as a disbursement for VAT purposes.

Generally, it is only advantageous to treat a payment as a disbursement for VAT purposes where no VAT is chargeable on the supply by the third party, or where your client is not entitled to reclaim it as input tax.

If you treat a payment for a standard-rated supply as a disbursement for VAT purposes, you may not reclaim input tax on the supply because it has not been made to you. Your client may also be prevented from doing so because the client does not hold a valid VAT invoice.

25.1.2 Evidence for VAT disbursements

If… Then…
you treat a payment as a disbursement for VAT purposes you must keep evidence (such as an order form or a copy invoice) to allow you to show that you were entitled to exclude the payment from the value of your own supply to your principal.

You must also be able to show that you did not reclaim input tax on the supply by the third party.

This example illustrates the invoicing procedure:

A registered person supplies standard-rated services to a client for a basic fee of £80. In addition, the supplier incurs £20 expenses which are passed on to the client, but which do not qualify for treatment as disbursements for VAT purposes. The supplier also pays £50 on behalf of the client in circumstances which qualify that payment to be treated as a disbursement.

The supplier must issue a VAT invoice to the client showing:  
Services £ 80.00
Expenses £ 20.00
Value for VAT £100.00
20% VAT £ 20.00
Disbursements £ 50.00
Total £170.00

25.1.3 Examples of supplies which cannot be treated as VAT disbursements

The following are examples of supplies which might, for accounting purposes, be charged or itemised separately, but which cannot be treated as disbursements for VAT purposes:

Example  
Example 1: A solicitor pays a fee to a bank for the transfer of funds telegraphically or electronically to, or from, the solicitor’s own business or client account.
VAT treatment: The solicitor cannot treat the bank’s fee as a disbursement for VAT purposes. The service for which the charge is made is supplied by the bank to the solicitor rather than to the client. Although the bank’s supply may be exempt from VAT, the fee when re-charged, even though at cost, is part of the value of the solicitor’s own supply of legal services to the client and VAT is due on the full amount.
Example 2: A solicitor pays a fee for a personal search of official records such as a Land Registry, in order to extract information needed to advise a client.
VAT treatment: The solicitor cannot treat the search fee as a disbursement for VAT purposes. The fee is charged for the supply of access to the official record and it is the solicitor, rather than the client, who receives that supply. The solicitor uses the information in order to give advice to the client and the recovery of this outlay represents part of the overall value of the solicitor’s supply. The solicitor must account for output tax on the full value of the supply.

Note: Where a solicitor pays a fee for a postal search, this may be treated as a disbursement since the solicitor merely obtains a document on behalf of the client. The client will normally need to use the document for their own purposes, such as to obtain a loan.
Example 3: A consultant is instructed by the client to fly to Scotland to perform some work.
VAT treatment: The consultant cannot treat the air fare as a disbursement for VAT purposes. The supply by the airline is a supply to the consultant, not to the client. The recovery of outlay by the consultant represents part of the overall value of the consultant’s supply of services to the client. The consultant must account for output tax on the full value of this supply.
Example 4: A private function is held at a restaurant. The customer pays for the food, drink and other facilities provided, and also agree to meet the costs of any overtime payments to the staff.
VAT treatment: The restaurant cannot treat the overtime payments as disbursements for VAT purposes. The supply by the staff is made to the restaurant, not to the customer. The staff costs are part of the value of the supply by the restaurant and VAT is due on the full amount.
Example 5: A manufacturer makes a separate charge to a customer for royalty or licence fees, which were incurred in making a supply to the customer.
VAT treatment: The manufacturer cannot treat the royalty or licence fees as disbursements for VAT purposes. The recovery of these fees is part of the manufacturer’s costs in making the supply to the customer. The manufacturer must account for output tax on the full value of the supply, including the royalty or licence fees.

25.2 Auctioneers

The arrangements in this paragraph apply if auctioneers offer goods for sale as an agent for the seller.

As an auctioneer,

If… Then…
you issue an invoice for the goods in your own name the goods are treated as supplied to you by the vendor and from you to the buyer.

This means you are liable to account for VAT on the supply of the goods as well as on the commission you charge the seller and - if applicable - on the fee charged to the buyer, sometimes referred to as buyer’s premium.

However,

If… Then…
you are arranging supplies of second-hand goods, works of art, antiques or collectors’ items you may be able to use the special accounting scheme for auctioneers, allowing you to calculate the VAT due on a margin basis.

You can find further details of the Auctioneers’ Scheme in VAT Notice 718: the VAT Margin Scheme and global accounting for second-hand goods, antiques, works of art and collectors’ items.

The normal place of supply and liability rules apply to the supplies you make as an auctioneer. You can find information on zero rating of supplies of goods for export or to VAT registered persons in other member states in VAT Notice 703: export of goods from the UK and VAT Notice 725: the single market.

The place of supply of your auctioneer services depends on their nature, to whom they are supplied, and where that person belongs.

25.2.1 Services to sellers

If… Then…
you act only as a selling agent your services are normally standard rated if the place of supply is the UK.

However,

If… Then…
your service is of an ‘expert’ type, such as consulting or advising on matters such as provenance, value, how to sell etc your supply may be outside the scope of UK VAT, depending on where the seller of the goods belongs.

25.2.2 Services to buyers

If… Then…
you make a supply of services to the buyer (by charging a buyer’s premium) your supply is normally standard-rated if the place of supply is the United Kingdom.

However,

If… Then…
you make a separate charge for providing or arranging services such as packing and exporting the goods to a country outside the EU those services may be zero rated under VAT Act 1994, Schedule 8, Group 7, item 2(a).

You will find further information about services in VAT Notice 741A: place of supply of services.

As an auctioneer, you may also be asked to arrange sales of goods in the satisfaction of a debt (for example, under a court order). If the debtor is a registered person and the goods are part of the business assets, you must account for VAT using the procedure set out in paragraph 18.4.1.

25.3 Exports

If you arrange exports of goods as an agent and you are treated as making the supply to an overseas buyer under the procedures in paragraph 22.6, you may zero rate this supply.

However, you must meet the conditions set out in VAT Notice 703: export of goods from the UK, which require that you obtain and hold valid proof of export as described in that notice.

25.4 MOT test charges

This paragraph deals with the VAT treatment of MOT test charges. In particular, it explains the conditions which must be met if the MOT test fee charged by a test centre to an unapproved garage and recharged to the latter’s customer is to be treated as a disbursement.

If you are an approved MOT test centre

Then… Provided that…
the fee you charge for carrying out an MOT test may be treated as outside the scope of VAT it does not exceed the statutory maximum fee.

Any discount you give to an unapproved garage should be treated as a normal trade discount (and does not represent consideration for any supply to you by the garage).

If you are an unapproved garage

And… Then…
you act as an agent in arranging MOT test on behalf of your customers and your customer knows you are acting as such you may treat the MOT as a disbursement and outside the scope of VAT provided the conditions in paragraph 25.1.1 are met.

Any amount you charge your customer over and above the amount charged to you by the test centre is consideration for your own service of arranging the test on behalf of your customer and is taxable at the standard rate.

Any charges you make to an MOT Testing station for delivering vehicles and arranging appointments are subject to VAT.
you choose not to treat the amount charged to you by the test centre as a disbursement, or you do not satisfy all the conditions set out in paragraph 25.1.1 you must account for VAT on the full invoice amount.

25.5 Search agencies

The following VAT treatment applies to search agencies from 1 February 1998.

If you obtain a fiche or hard copy of data from a source such as Companies House, the item you obtain should be regarded as a piece of information rather than a tangible object. When you recharge the search fee to your customer, you may treat it as a disbursement and outside the scope of VAT, provided you pass on the information without analysis or comment, and all the conditions outlined in paragraph 25.1.1 are met.

If you are a search agency

And… Then you…
you carry out a process on the fiche or hard copy itself, but without using it to inform an opinion or report may treat the search fee as a disbursement and also outside the scope of VAT.

An example would be where you obtain a search but your customer does not have a facility to read the fiche, and you simply convert it into readable hard copy and pass it on to your customer without comment or analysis. The same would apply where you provide your customer with typewritten extracts of a fiche or document but again, without analysis or comment.
you analyse, comment on, or produce a report on a fiche or document obtained from a source such as Companies House, or otherwise use information obtained in a search to produce a report must not treat the search fee as a disbursement.

In these cases, the search fee is a component part of your costs in providing your services to your customer, and is taxable at the standard rate.

25.6 Debt collectors: solicitors’ charges and costs awarded by the Courts

This paragraph deals with the arrangements debt collectors enter into for the legal recovery of debts.

HMRC has applied a revised policy from 1 April 1998, following consultation with the trade. It covers the treatment by collectors of:

  • VAT charged by solicitors for their services of pursuing the debt through the Court
  • fees paid by solicitors to the Court and recovered from the debtor

It also covers the VAT treatment of:

  • costs awarded by the Court against the debtor to cover the Court fees
  • the solicitor’s charges, where the agreement with the creditor allows the collector to retain these monies

Nothing in the revised policy restricts the freedom of collectors to negotiate and agree with their clients about how sums collected from the debtors are to be allocated between the principal debt, Court fees and solicitors’ scale charges.

25.6.1 Collectors who act as agents

(a) Court fees

The amounts you pay to solicitors for Court fees may be treated as disbursements made on behalf of the creditor, which are outside the scope of VAT. Any amount you recover from debtors for such fees, and retain, may then be regarded as reimbursement of the amounts disbursed and outside the scope of VAT.

(b) Legal fees

Where solicitors charge you VAT for their services, there are only 2 options open to you:

  • you may choose not to recover the VAT as input tax, and simply treat the charges as disbursements in accordance with paragraph 25.1 - in this case, where your agreement with the creditor provides that you bear the cost of solicitors’ services but retain, as reimbursement of your costs, any amounts you recover from the debtor for solicitors’ scale charges awarded by the Court, you may treat such amounts as outside the scope of VAT
  • you may choose to recover the VAT as input tax, subject to the normal rules, but recharge the fees plus VAT to the creditor under the terms of section 47(3) of the VAT Act 1994 - under this option, the scale charges you retain represent payment of the fees you have recharged

25.6.2 Collectors who act as principals

(a) Accounting for tax

If… Then…
in the particular circumstances of any case, you consider that you are acting as a principal you may recover as input tax any VAT charged to you by the solicitor, subject to the normal rules.

However, any amounts for both Court fees and/or solicitors’ scale charges which you recover from the debtor, and retain, can only represent consideration for your supply of services to the creditor.

You must account for output tax on all such amounts in the normal way. This treatment will not apply if you have received an assignment of debts - see below.

(b) Assigned debts

An equitable or legal assignment of the debts to you, whether in whole or in part, is an exempt supply of services to you, and the collection by you of such debts is outside the scope of VAT.

26. Changes in circumstances

26.1 Introduction to changes in circumstances

Your entry in the VAT register is based initially on the information you provide at the time you are registered.

If there are any changes to that information, you must notify the VAT Registration Service. You may render yourself liable to a civil penalty if you fail to notify any of these changes within the prescribed time limit.

This section explains the changes in circumstances which will require:

  • cancellation of your registration
  • amendment of your existing registration

26.2 Changes that require cancellation of VAT registration

Any of the following changes require your registration to be cancelled:

(a) the business is closed down

(b) the business is sold

(c) the proprietor of the business takes one or more persons into partnership

(d) a partnership ceases to exist, but one of the former partners becomes sole proprietor of the business

(e) a company is incorporated to take over a business previously carried on by a sole proprietor or unincorporated association of persons, such as a partnership, club etc

(f) a business previously carried on by an incorporated company is taken over by a sole proprietor or unincorporated association of persons, such as a partnership, club etc

(g) taxable supplies cease for any other reason

(h) you have been granted an intending trader registration and you no longer intend to make taxable supplies by way of business

(i) you apply to join the agricultural flat-rate scheme (see paragraph 26.13)

You must notify the VAT Registration Service within 30 days of the change:

You may render yourself liable to a civil penalty if you fail to notify any of the above changes within the prescribed time limit. See VAT Notice 700/11: cancelling your registration for further details.

New registration number

If then they will apply for either…
as a result of any of the changes in (b) to (f), the new owner is liable to be registered a new registration number, or

your registration number to be re-allocated to them (see VAT Notice 700/9: transfer of business as a going concern for further details).

26.3 Changes that require amendment of registration

Your registration will have to be amended in the case of any changes in:

  • the name or trading name of the business, or the name and/or address of any partner in the business
  • the composition of a partnership, even if one or more of the former partners remains in the partnership
  • the name and/or address of the UK agent for VAT purposes, appointed by an overseas company or resident
  • the address of the principal place at which the business is carried on
  • your main business activity
  • status of the business from limited liability to unlimited liability, or vice versa, under section 49 or 51 of the Companies Act 1985
  • the bank account number, bank sorting code or Girobank account number of the business - as it may take up to 14 days to process any change of repayment method, you should give enough notice to allow the change to be completed and please note that any delay in notification may result in a repayment being made under the existing arrangements

You must notify the VAT Registration Service within 30 days of the above changes:

You may render yourself liable to a civil penalty if you fail to notify any of the above changes within the prescribed time limit. See VAT Notice 700/1: should I be registered for VAT? for further details.

Some of the above changes require written confirmation, but some may be made via the VAT online service - see Changes to your VAT registration details.

Your registration number will not be altered as a result of these changes.

If  
you are using the annual accounting scheme, and

there is a change in your bank account number, bank sorting code or Girobank account number
you must notify your bank and the VAT Registration Service, as the change will affect the direct debit arrangements.

26.4 Group treatment

If you wish to vary the composition of a VAT group, you should apply promptly to the VAT Registration Service. If you do not apply to include an additional member in the VAT group at the correct time, HMRC will only allow a period of retrospection in very exceptional circumstances. See VAT Notice 700/2: group and divisional registration for further details.

It is not possible to re-allocate a previously held VAT registration number to a group registration or a VAT group registration number to a former group member on disbanding the group.

26.5 Divisional registration

A corporate body organised in divisions may be registered for VAT as such. Although each division is given its own registration number, it is the corporate body as a whole that is registered. The corporate body must sign an approval letter before becoming so registered.

If you do not meet the terms of that approval at any time, you must inform the VAT Registration Service. The Service has the authority to cancel the divisional registration and restrict the corporate body to a single registration.

You can find more about this in VAT Notice 700/2: group and divisional registration.

26.6 Changes that require a transfer between the UK and Isle of Man VAT registers

The UK and the Isle of Man maintain separate VAT registers. A change of circumstances may mean that transfer between these registers is appropriate.

You notify the VAT Registration Service if:

You have been registered in the and you acquire a place of business or an agent in the…
UK Isle of Man
Isle of Man UK

If you had a place of business or an agent in both countries at the time you were registered, you must give notification of any major change in the functions carried out at either address.

26.7 Death or incapacity

If a taxable person dies, or becomes bankrupt or incapacitated (or a company goes into liquidation or receivership), and the business run by that person is then carried on by a personal representative, HMRC will allow that personal representative to be treated as the same taxable person. This will apply until such time as another person is registered in respect of the taxable supplies etc concerned, or, in the case of incapacity, the person concerned is able to continue with their business. The person who carries on the business is responsible for complying with all the normal VAT obligations of a taxable person.

The personal representative carrying on such a business must notify the VAT Registration Service within 21 days of starting to do so, giving details of the date of the death, or the nature of the incapacity and the date that it began, as appropriate. If the personal representative requires any further advice they should contact the VAT Registration Service.

26.8 Death of a partner

The death of a partner should be notified to the VAT Registration Service within 30 days. If two or more partners remain, and they intend to continue in business, they should notify the VAT Registration Service accordingly and HMRC will amend their details in its records.

If there is a single surviving partner and that partner intends to recruit a replacement partner, the VAT Registration Service should be informed of the details of the new partner within 30 days of the new partner’s appointment.

If there is a single surviving partner and that partner decides to continue the business as a sole proprietor, the VAT Registration Service should be notified within 30 days of the change taking place.

26.9 Insolvency

When an individual proprietor or a partner of a business becomes bankrupt, the person carrying on the business must notify the Department within 21 days of commencing to do so at the following address:

HM Revenue and Customs
National Insolvency Unit
5th Floor
Regian House
James Street
Liverpool
L75 1AD

Similarly, when an administrator, administrative receiver or liquidator takes over the affairs of an incorporated company, they must also notify the Department, at the above address, of:

  • the date from which they became responsible
  • the circumstances in which they took over

All notifications of formal insolvencies and administration orders should be registered on form VAT 769 with the Legal Recovery Unit.

See VAT Notice 700/56: insolvency for further information on the VAT treatment of insolvent traders.

26.10 Transfer of a business as a going concern

If then…
you sell your business as a going concern or transfer it to another legal entity (for example, by one of the changes described in paragraph 26.2(b) to (f)) the transfer of your business assets may not be a supply for VAT purposes.

If this is the case, you must not issue a VAT invoice or account for output tax and the new owner cannot reclaim input tax on the transaction.

In some circumstances the new owner may apply for your registration number to be re-allocated to them.

If you are a member of a partly exempt VAT group and you acquire a business as a going concern, the group may have to account for output tax on purchasing some of the assets.

See VAT Notice 700/9: transfer of a business as a going concern for full details of these arrangements.

26.11 Voluntary cancellation

Apart from the changes which require cancellation of your registration - as listed in paragraph 26.2 - you can ask for your registration to be cancelled if your turnover falls below certain limits.

You will find the limits in the supplement to VAT Notice 700/11: cancelling your registration. VAT Notice 700/11 explains the effects of cancellation and the procedure to follow. In particular, you may have to pay tax on stock and capital assets on hand at deregistration.

26.12 Exemption from registration

If your taxable supplies or acquisitions are, or have become, wholly or mainly zero rated, you can, if you wish, apply to be exempted from registration. Exemption is allowed on the understanding that:

  • your taxable supplies or acquisitions are, and will continue to be, wholly or mainly zero rated
  • if you were registered, your input tax would be more than your output tax in any 12-month period

You must notify the VAT Registration Service within 30 days of the date of a material change or alteration in the:

  • nature of your supplies
  • proportion of your taxable supplies that are zero rated

Which will affect your entitlement to exemption from registration. For example, this applies where, if you were registered, your output tax would be more than your input tax in any 12-month period.

If you cannot identify the exact date of the change, you must notify the VAT Registration Service within 30 days of the end of the calendar quarter in which the change occurred.

There are financial penalties for failing to notify these changes within the prescribed time limit.

Please remember that once you are exempted from registration, you cannot reclaim any VAT you are charged on purchases of goods or services for your business. You will find further information about exemption from registration in VAT Notice 700/1: should I be registered for VAT?.

26.13 Agricultural Flat Rate Scheme

This scheme is an alternative to VAT registration for farmers or anyone involved in certain designated agricultural activities.

Farmers who are certified under the scheme do not have to account for VAT or submit returns and cannot reclaim input tax on business purchases. However, they can charge and keep a flat-rate addition of 4% when they sell qualifying goods and services to VAT-registered customers.

You will find full details of the scheme in VAT Notice 700/46: Agricultural flat rate scheme.

27. Financial penalties and interest charges

27.1 Introduction to penalties and charges

HMRC uses a range of measures to encourage people to register for VAT on time, send in accurate VAT returns and make payments on time.

One of these, Default Surcharge, is covered in paragraph 21.2.2. Other measures include:

  • the penalty for late registration
  • the misdeclaration penalty for large or repeated errors
  • the penalty for evasion involving dishonesty
  • interest charged on under declarations

This section explains these measures, when they are put into effect, and how the amount of penalty or interest is calculated.

27.2 Late registration penalty

You may incur a penalty if you fail to notify HMRC at the correct time that you should have registered for VAT. You can find more information about registration and the relevant time limits in VAT Notice 700/1: should I be registered for VAT?.

The amount of the penalty is a percentage of the net VAT due to HMRC, from the date when you should have registered to the date when HMRC either:

  • received your application
  • became fully aware of your need to be registered

The percentage varies according to how late you were in registering.

If you registered… Then the penalty rate will be….
less than 9 months late 5%
9 to 18 months late 10%
more than 18 months late 15%

There is a minimum penalty of £50.

See VAT Notice 700/41: late registration penalty for further details.

27.3 Misdeclaration penalty and repeated misdeclaration penalty

The misdeclaration penalty and repeated misdeclaration penalty are designed to encourage businesses to submit accurate returns. HMRC may impose a penalty whenever there has been a significant or repeated lack of care in preparing VAT returns, leading to the true amount of tax payable being under declared.

The penalty rate is 15% of the tax which would have been lost had the error not been discovered.

You may incur a penalty if you under declare tax by:

  • showing too little tax due on your VAT Return
  • claiming a repayment which is too large on your VAT Return
  • failing to tell HMRC within 30 days that a centrally issued assessment is too low
If the under declaration is… Then you may be liable to…
£1 million or more or equals 30% or more of the tax managed in the relevant period Misdeclaration Penalty
one of a series which is: £500,000 or more or equals 10% or more of the tax managed in the relevant period Repeated Misdeclaration Penalty

A penalty will not be due if, for example, you:

  • make a full disclosure of the under declaration, at a time when you had no reason to believe that HMRC was investigating your tax affairs
  • have a reasonable excuse for the under declaration

HMRC may reduce the amount of penalty if there are mitigating circumstances that fall short of a reasonable excuse. The amount of mitigation will depend on the circumstances of the case.

You will find more details about this in VAT Notice 700/42: misdeclaration penalty and repeated misdeclaration.

These penalties do not imply any dishonesty or intention to evade tax. The penalty for conduct involving dishonesty is described in paragraph 27.4 below.

27.4 Tax evasion

Most taxpayers do pay the VAT that is due, but unfortunately some deliberately try to little or reclaim too much. When HMRC thinks this may have happened, there will have to be an investigation.

27.4.1 Objectives

HMRC’s objectives in tackling fraud are to:

  • secure the highest level of overall compliance
  • stop fraud and evasion at the earliest opportunity
  • collect the unpaid tax or repayment made, plus related penalties and interest
  • make sure, as far as possible, that the fraud does not recur

27.4.2 Knowledge of fraud

Some fraudulent activity involves the re-supply of goods or services through a chain of transaction. You should therefore make yourself aware of the risks and possible indicators of a connection with fraud by reading the leaflet VAT: missing trader fraud. Where HMRC can demonstrate that you knew or should have known that your transactions were connected with fraudulent tax losses then you will lose your entitlement to claim the input tax linked to those transaction.

In addition, VAT Notice 726: joint and several liability for unpaid VAT guidance on due diligence checks and explains the circumstances in which taxpayers may be held liable for VAT unpaid by other parties in supply chains involving specified types of goods.

27.4.3 Civil action

In most cases of suspect dishonest evasion of VAT, HMRC will investigate with a view to the imposition of a civil penalty. The maximum penalty in such cases is an amount equal to the VAT evaded. HMRC will encourage you to co-operate and produce evidence, and may reduce the penalty to take account of the extent of your co-operation with the investigations.

27.4.4 Criminal proceedings

However, HMRC may also investigate any case of suspected dishonest evasion of VAT with a view to bringing criminal proceedings. HMRC will decide on the appropriate course of action according to the merits of each case but generally prosecutes only the more serious or aggravated cases. Prosecution is more likely in certain circumstances, including when:

  • the evasion involves a registration of one or more businesses whose activities are solely, or primarily, bogus or undertaken as a systematic fraud against the tax
  • there is, during the course of investigation of a civil offence, a deliberate intent to deceive
  • the evasion is perpetrated by: lawyers, accountants or others who advise businesses about VAT matters current or former tax officials or a person who occupies a prominent position in the field of law or government
  • the evasion is executed together with other criminal activities - for example, excise evasion or where the case is being investigated criminally by the Inland Revenue
  • there has been a previous VAT or customs or excise offence which was concluded by the imposition of a penalty, the compounding of proceedings or a criminal conviction
  • where there is a conspiracy to evade VAT, other than by persons within the same legal entity
  • where the evasion is perpetrated by an undischarged bankrupt
  • in circumstances where HMRC has directed that a security should be given under VAT Act 1994, Schedule 11, paragraph 4(2) and taxable supplies take place without the security being given

As an alternative to criminal proceedings, HMRC may accept a financial settlement in place of proceedings pursuant to the HM Revenue and Customs Management Act 1979, section 152. This is known as compounding. HMRC takes the decision whether to prosecute or compound proceedings according to the merits of each case.

27.5 Other penalties

You can incur penalties for various other breaches of HMRC’s VAT requirements, such as failure to keep or produce VAT records and unauthorised issue of VAT invoices. The VAT: general enquiries helpline can provide further details if necessary.

27.6 Reasonable excuse and mitigation

If HMRC (or, following an appeal, an independent tribunal (see section 28)) agrees that there is a reasonable excuse for your late registration or misdeclaration, you will not be liable to a penalty. Alternatively, a penalty can be reduced if there are mitigating circumstances that fall short of a reasonable excuse.

27.7 Default interest

In addition to penalties, you can also be charged interest on misdeclarations of VAT, normally where it represents commercial restitution.

If HMRC finds that you have made misdeclarations you will be sent a Notice of Assessment, showing how much VAT you owe and the amount of interest due.

The interest is calculated:

  • from the date when you should have first paid the outstanding VAT
  • to the date shown on the Notice of Assessment

Where you have made a repayment claim and are then found to have over claimed VAT, the interest is calculated from 7 days after the date HMRC authorised your repayment.

In either case above, interest will not be charged for more than 4 years before the date the assessment is processed.

The interest will be calculated as a percentage of the VAT you owe. It will be a simple - not a compound - rate, set by the Treasury, and will broadly reflect current commercial rates of interest. You will be liable to a further interest charge if you do not pay the VAT due within 30 days of the date of the Notice of Assessment.

You cannot deduct interest from your net profit for the purposes of calculating your direct tax liability. The rate of interest is set to reflect this.

See VAT Notice 700/43: default interest for further information.

28. What to do if you disagree with an HMRC decision about VAT

This section explains the procedures that exist to settle disagreements between you and HMRC on VAT matters.

Where HMRC notifies you of a decision relating to your VAT, if you disagree you may be able to challenge the decision. The following table lists the types of decisions that you can challenge by appealing:

Subject Appealable matter
Registration registration

cancellation or invalidation of a registration, or

refusal to allow a group registration or a change in a group registration.
Assessments assessment of tax by HMRC, or the amount of an assessment, or

assessments issued more than four years after the end of the relevant tax period.
Input tax the amount of input tax which may be reclaimed, or

attribution of input tax by partly exempt persons (see VAT Notice 706: partial exemption).
VAT schemes refusal to allow the use of one of the schemes described in VAT Notice 727: retail schemes

the amount of any refund of VAT under the ‘do-it-yourself’ builders’ scheme (see VAT 431NB and VAT 431C), or

refusal to allow the use of the cash accounting scheme.
Valuation HMRC’s directions about the value of supplies of goods and services.
Amount of tax chargeable the amount of tax chargeable on any supply of goods or services, or on the importation of any goods or whether any tax is chargeable at all.

Note: If you have a dispute about the value of imported goods, you should see VAT Notice 702: imports, which explains the procedure.
HMRC requirements any requirement by HMRC that a particular registered person should provide security as a condition of making taxable supplies, or

any requirements concerning computer invoicing imposed in a particular case by HMRC under VAT Act 1994, Schedule 11 (see paragraph 17.7).
Claims any rejection of a claim by a registered person for repayment of the tax paid on the importation of goods which they do not wholly own (see VAT Notice 702: imports)

any claim for refund of tax on a bad debt (see paragraph 18.5)

HMRC’s refusal to accept a claim that interest is payable, due wholly or partially to its own error (see paragraphs 2.7 and 21.6), or

HMRC’s rejection of a claim for payment of repayment supplement.
Default surcharge or any of the financial penalties referred to in section 27 This includes whether:

the penalty should be imposed

the penalty has been worked out correctly, or

there was a ‘reasonable excuse’.

Note: If you wish to appeal against default surcharge, you should see VAT Notice 700/50: default surcharge, which will tell you more about this.

If your decision is one of those listed above, when notifying you of the decision HMRC will offer you the opportunity to have your decision reviewed by an officer of HMRC not previously involved in the matter. Alternatively, you can appeal to an independent tribunal. If you opt for a review, you can still appeal to the tribunal after the review has finished if you are unhappy with the outcome.

Factsheet HMRC1 HMRC decisions - what to do if you disagree explains what to do if you wish to challenge a decision in the above table. You can get a copy on GOV.UK website or by phoning Telephone: 0845 900 0404. Further detailed guidance is available on in the guide on disagree with a tax decision.

29. Zero rating, reduced rating and exemption

29.1 Introduction to zero rating, reduced rating and exemption

Section 3 of this notice tells you about the different types of supplies you can make:

  • standard rated
  • reduced rated
  • zero rated
  • exempt

This section does not explain the liability of supplies. However, it does tell you:

  • in broad terms, the areas of business where you will need to check the liability of your supplies
  • which other notices you should refer to if you are involved in any of the areas mentioned

Remember, if any supply that you make is not zero-rated or exempt, it is standard rated or reduced rated, meaning there will be an amount of VAT to be charged.

If you read any of the other notices and you are still not sure about the liability of your supplies, don’t guess - ask the VAT: general enquiries helpline.

Remember, if you incur input tax that is related to exempt supplies as well as taxable supplies, you are termed as partly exempt and you will probably not be able to claim all your input tax. See section 13 for further information.

29.2 Zero-rated supplies

29.2.1 Bank notes

See VAT Notice 701/49: finance.

The first issue, by the bank of issue, of Bank of England, Scottish and Northern Irish bank notes is zero-rated.

29.2.2 Books, newspapers, periodicals, etc

See VAT Notice 701/10: zero-rating of books and other forms of printed matter.

This notice explains which supplies of books, newspapers, periodicals, leaflets, music, maps and other printed matter are zero-rated and which are standard-rated.

29.2.3 Caravans and houseboats

See VAT Notice 701/20: caravans and houseboats.

This explains when the supply of a caravan or houseboat is standard-rated and when it is zero-rated. It also gives information about various services provided by site operators and mooring owners.

Under certain conditions the sale of a caravan may be reduced rated - see VAT Information Sheet 11/12 on the National Archives website.

For the letting of caravans or houseboats as holiday accommodation, see also VAT Notice 709/3: hotels and holiday accommodation.

29.2.4 Charities

See VAT Notice 701/1: charities.

Some supplies made by or to charities are zero rated, some are reduced rated, some are standard-rated and some exempt.

For example:

  • advertising supplied to charities - zero-rated, see VAT Notice 701/58
  • goods donated to a charity for sale by them - zero rated

29.2.5 Children’s clothing and footwear

See VAT Notice 714: zero rating young children’s clothing and footwear.

This explains which supplies of young children’s clothing and footwear can be zero rated.

There is also information about protective boots and helmets in VAT Notice 701/23: protective equipment.

29.2.6 Construction

See VAT Notice 708: buildings and construction.

This explains when work to construct a dwelling, residential or charitable building can be zero rated.

This also explains when the sale or long lease of dwellings, certain residential buildings (such as care homes) and certain buildings used by charities is zero rated.

And, it also explains when work to convert buildings may be reduced rated.

29.2.7 Disabled reliefs

See VAT Notice 701/7: VAT reliefs for disabled and older people.

Under certain circumstances, goods that are specifically designed to be used by a disabled person, or services specifically aimed at assisting a disabled person, may be zero rated when supplied to a disabled person for their personal use.

29.2.8 Drugs, medicines, etc

See VAT Notice 701/57: health professionals and pharmaceutical products.

The dispensing of drugs, medicines and other items to patients by a pharmacist or doctor is zero rated in certain circumstances.

29.2.9 Exports

The following notices set out the various procedures which allow goods, normally standard-rated in the UK, to be zero-rated as exports:

29.2.10 Food, catering and agriculture

See VAT Notice 701/14: food.

This notice explains which supplies of food and drink for human consumption are zero-rated and which are standard rated.

See VAT Notice 709/1: catering and take-away food.

This deals with catering and take-away food.

There are also publications about:

29.2.11 Gold

See VAT Notice 701/21: gold.

This notice explains which supplies of gold are standard rated, which are zero rated and which are outside the scope of VAT. The notice also covers the special voluntary scheme for gold transactions.

29.2.12 Health

See VAT Notice 701/31: health institutions and VAT Notice 701/57: health professionals and pharmaceutical products.

Some supplies by health professions and institutions are exempt, some are zero rated and some are standard rated.

For example:

Supplies of some take away drugs by NHS GPs - zero rated, see VAT Notice 701/57: health professionals and pharmaceutical products, and the liability of supplies of medical and surgical appliances and goods for people with disabilities, and the repair and maintenance of these is explained in VAT Notice 701/7: VAT reliefs for disabled and older people.

29.2.13 Imports

See VAT Notice 702: imports.

Where imported goods are supplied between the time of their arrival in the UK and the time when an import entry is delivered to HMRC, and the new owner of the goods is required to make the import entry, the supply should be zero-rated.

29.2.14 Intermediary services

See VAT Notice 741A: place of supply of services.

Whilst this notice mainly deals with the various rules that determine where a supply is taxable, it also deals with the zero-rating of intermediary services.

29.2.15 Land and buildings

VAT Notice 742: land and property explains the issues relating to sales, leases, licences, rights over land, sporting and mineral rights and parking facilities. Many of these supplies are exempt although some are zero rated and some are standard rated.

VAT Notice 742A: opting to tax land and buildings explains how you can choose to standard rate some supplies of property, which would otherwise be exempt, by opting to tax.

VAT Notice 708: buildings and construction explains when the sale or long lease of dwellings, certain residential buildings (such as care homes) and certain buildings used by charities is zero rated.

29.2.16 Passenger transport, international freight, ships and aircraft

see VAT Notice 744A: passenger transport, VAT Notice 744B: freight transport and associated services and VAT Notice 744C: ships, aircraft and associated services.

These notices explain when supplies of freight and passenger transport, and supplies in the ship and aircraft construction and repair industry can be zero rated. They also deal with the zero-rating provided for the handling of certain ships, aircraft and cargo in UK ports and customs airports.

There are also notices which cover:

29.2.17 Protective Equipment

See VAT Notice 701/23: protective equipment.

This notice explains the scope of the zero rating for motorcycle, cycle and other protective helmets and for protective boots.

It also contains details of the reduced rate for children’s car seats.

29.2.18 Tools for the manufacture of goods for export

See VAT Notice 701/22: tools for manufacture of goods for export.

This notice deals with the liability of supplies of certain tools to overseas customers, where the tools are used in the UK solely for the manufacture of goods for export.

29.2.19 Training services supplied to overseas governments

See VAT Notice 741A: place of supply of services.

Whilst this Notice mainly deals with the various rules that determine where a supply is taxable, it also deals with the zero-rating of training services supplied to overseas governments.

29.2.20 Water and sewerage services

See VAT Notice 701/16: water and sewerage services.

This notice explains which supplies of water and sewerage services are zero-rated and which are standard-rated.

29.2.21 Work on goods for export from the EU

See VAT Notice 741A: place of supply of services.

Whilst this notice mainly deals with the various rules that determine where a supply is taxable, it also deals with the zero-rating of work on goods for export from the EU.

29.3 Reduced-rated supplies

29.3.1 Cable-suspended passenger transport systems

From 1 April 2013 the 5% reduced rate of VAT applies to supplies in cable suspended passenger transport systems carrying under 10 passengers, such as ski lifts. Cable cars etc carrying 10 passengers or more are already zero rated as passenger vehicles. Lifts within buildings are not included.

29.3.2 Caravans and houseboats

Under certain conditions the sale of a caravan may be reduced rated - see VAT Information Sheet 11/12 on the National Archives website.

Generally, however, supplies will be standard rated or zero rated - see VAT Notice 701/20: caravans and houseboats.

29.3.3 Charities

See VAT Notice 701/1: charities.

Some supplies made by or to charities are zero-rated, some are reduced-rated, some are standard-rated and some exempt.

For example:

Fuel and power supplied to charities for their non-business use - reduced rate, see VAT Notice 701/19: fuel and power.

29.3.4 Children’s car seats

See VAT Notice 701/23: protective equipment.

This notice contains details of the reduced rate for children’s car seats.

It also explains the scope of the zero-rating for motorcycle, cycle and other protective helmets and for protective boots.

29.3.5 Construction work

VAT Notice 708: buildings and construction

This explains when work to covert buildings for residential or charitable use may be reduced rated.

The notice also addressed the zero rating of work to construct new buildings and the zero-rating of sales of long leases in new buildings.

29.3.6 Contraceptive products

See [VAT Notice 701/57: health professionals and pharmaceutical products].(https://www.gov.uk/government/publications/vat-notice-70157-health-professionals-and-pharmaceutical-products)

This notice includes an explanation about the treatment of contraceptive products, which may be standard-rated, reduced-rated or exempt, depending upon the circumstances.

29.3.7 Energy-saving materials

See VAT Notice 708/6: energy-saving materials.

This explains when the installation of specified energy-saving materials can be reduced-rated. The specified items are:

  • controls for central heating and hot water systems
  • draught stripping
  • insulation
  • solar panels
  • wind turbines
  • water turbines
  • ground source heat pumps
  • air source heat pumps
  • micro combined heat and power units
  • wood-fuelled boilers

29.3.8 Fuel and power

See VAT Notice 701/19: fuel and power.

This notice explains which supplies of solid fuels, oils, gases, electricity, heating, refrigeration and air-conditioning are liable at the reduced rate or standard rate.

29.3.9 Grant funded installation of heating equipment or security goods

See VAT Notice 708/6: energy-saving materials.

This explains when the reduced rate applies to the installation of certain heating appliances, central heating, renewable source systems and security goods in the sole or main residence of qualifying persons, where the work is grant funded.

29.3.10 Hotel, hostel and similar accommodation

See VAT Notice 709/3: hotels and holiday accommodation.

Supplies of accommodation are generally standard-rated. However, where a guest stays for over 28 consecutive days, the charge for the sleeping accommodation may be reduced-rated.

29.3.11 Mobility aids for the elderly

See VAT Notice 701/7: VAT reliefs for disabled and older people.

The supply and installation of certain mobility aids are eligible for the reduced rate of VAT when they are installed in domestic accommodation aged 60 or over at the time of supply.

The reduced rate applies to the supply and installation following items only:

  • grab rails
  • ramps
  • stair lifts
  • bath lifts
  • built-in shower seats or showers containing built-in shower seats
  • walk-in baths with sealable doors

However, the reduced rate does not apply to any repairs or maintenance of those goods once they have been installed.

More detail can be found in Revenue and Customs Brief 47/07 on the National Archives website.

29.3.12 Smoking cessation products

See VAT Notice 701/57: health professionals and pharmaceutical products.

This notice explains when the supply of smoking cessation products will be reduced rated.

29.3.13 Welfare advice or information

See VAT Notice 701/2: welfare.

This explains when the reduced rate can apply to advice or information that relates directly to the:

  • physical or mental welfare of elderly, sick, distressed, or disabled people
  • the care or protection of children and young people

but only where this is of a general nature, not in relation to a particular individual.

29.3.14 Women’s sanitary protection products

See VAT Notice 701/18: women’s sanitary protection products.

This notice explains which sanitary products can be supplied at the reduced rate.

29.4 Exempt supplies

29.4.1 Betting, gaming and lotteries

See VAT Notice 701/29: betting, gaming and lotteries.

Some supplies connected with betting, gaming and lotteries are exempt. Others are standard-rated.

This notice explains how VAT applies to betting, gaming and amusement machines, bingo and lotteries.

Also see Excise Notice 452: Machine Games Duty. Machine games that are liable to Machine Games Duty (MGD) re exempt from VAT.

29.4.2 Burial, cremation and commemoration of the dead

See VAT Notice 701/32: burial, cremation and commemoration of the dead.

Most supplies relating to burial or cremation are exempt, but there are important exceptions. This notice explains which supplies are exempt and which are taxable.

29.4.3 Charities

See VAT Notice 701/1: charities.

Some supplies made by or to charities are zero rated, some are reduced-rated, some are standar -rated and some exempt.

For example, fund-raising events organised by charities are exempt, see leaflet CWL4.

29.4.4 Clubs and associations

See VAT Notice 701/5: clubs and associations.

This explains the effect of VAT law on supplies made by clubs and associations, and the scope of the exemption for bodies that have objects that are in the public domain and are of a trade union, political, religious, patriotic, philosophical, philanthropic or civic nature.

If you run a youth club you also need VAT Notice 701/35: youth clubs. This explains how far you can treat your supplies as exempt.

29.4.5 Competitions in sport and physical recreation

See VAT Notice 701/45: sport.

This Notice explains when entry fees to certain sports competitions may be exempted.

29.4.6 Cost sharing group exemption

The cost sharing exemption applies when two or more organisations (whether businesses or otherwise) with exempt and/or non-business activities join together on a cooperative basis to form a separate, independent entity - a Cost Sharing Group (CSG) - to supply themselves with certain services at cost

The cost sharing exemption applies only in very specific circumstances and will not cover all shared service arrangements.

More detailed guidance can be found in VAT Information Sheet 07/12 on the National Archives website.

29.4.7 Culture

See VAT Notice 701/47: culture.

This notice explains the scope of the exemptions for admission charges to cultural exhibitions and events and for associated fund-raising activities.

29.4.8 Derivatives and terminal markets

See VAT Notice 701/9: commodities and terminal markets.

This tells you about the VAT treatment of transactions in commodity and financial derivatives and trading on certain commodity markets, some of which may be exempt.

29.4.9 Education and vocational training

See VAT Notice 701/30: educational and vocational training.

This explains which supplies related to education are exempt and which are standard-rated. In particular, it deals with:

  • education
  • training
  • research
  • private tuition
  • supplies provided in connection with these

29.4.10 Finance and securities

See VAT Notice 701/49: finance.

This explains which dealings in money, trading in securities and associated financial services are exempt and which are standard rated. It contains information about:

  • dealings in money and assignment of debts
  • provision of credit and loans
  • arrangements for all the above
  • the operation of bank accounts
  • stocks, shares, bonds and other securities
  • broking services
  • other specialised services related to holding and trading these securities

If you have an international business in financial services or securities, you will also need VAT Notice 741A: place of supply of services to help you decide which of the supplies you make are within the scope of UK VAT and how far you can recover input tax on the transactions you undertake.

29.4.11 Health

See VAT Notice 701/31: health institutions and VAT Notice 701/57: health professionals and pharmaceutical products.

Some supplies by health professions and institutions are exempt, some are zero rated and some are standard rated.

For example:

29.4.12 Insurance

See VAT Notice 701/36: insurance.

This notice explains which insurance services are exempt and which are outside the scope of VAT, with or without input tax recovery.

It covers the VAT implications for supplies of:

  • insurance and reinsurance transactions
  • insurance related services performed by brokers and agents

29.4.13 Investment gold

See VAT Notice 701/21: gold and VAT Notice 701/21A: investment gold coins.

Investment gold is exempt from VAT, subject to an option to tax. VAT Notice 701/21A contains a list of investment gold coins.

29.4.14 Land and buildings

VAT Notice 742: land and property explains the issues relating to sales, leases, licences, rights over land, sporting and mineral rights and parking facilities. Many of these supplies are exempt although some are zero rated and some are standard rated.

VAT Notice 742A: opting to tax land and buildings explains how you can choose to standard rate some supplies of property, which would otherwise be exempt, by opting to tax.

29.4.15 Machine Games Duty

See Excise Notice 452: Machine Games Duty.

Machine games that are liable to Machine Games Duty are exempt from VAT. This means that some businesses will become fully exempt from VAT and others will become partially exempt.

29.4.16 Postage stamps and philatelic supplies

See VAT Notice 701/8: postage stamps and philatelic supplies.

This notice explains the VAT treatment of supplies of new and used stamps, including first day covers and stamped stationery.

29.4.17 Sport

See VAT Notice 701/45: sport.

This notice explains the scope of the exemptions for sporting and physical education services and for entry fees for competitions in sport and physical recreation.

29.4.18 Trade unions, professional bodies and learned societies

See VAT Notice 701/5: clubs and associations.

This explains the scope of the exemption for bodies that have objects that are in the public domain and are of a trade union, political, religious, patriotic, philosophical, philanthropic or civic nature.

It also explains the effect of VAT law on supplies made by clubs and associations.

29.4.19 Works of art etc, disposals from stately homes

See VAT Notice 701/12: disposal of antiques, works of art from historic houses.

This explains when disposals of works of art and other objects, including manuscripts, prints and scientific objects, are liable to VAT. It also covers the arrangements under which certain disposals, exempted from capital taxation, may be exempted from VAT.

30. Changes in tax rates and liability

30.1 Introduction to changes in tax rates and liability

This section explains what to do when there is a change in the rate of VAT (see paragraph 3.7). The same provisions apply when the tax liability of particular goods and services changes. It is possible that other procedures might be necessary but details of these would be given at the time of any change.

When a VAT rate or liability is changed, it may have to be introduced at short notice. HMRC recommends that your accounting system - whether or not you use a computer - is designed to allow you to adjust to the change without difficulty.

Some particular circumstances

If you… Then you…
use the cash accounting scheme can still follow the rules in this section to work out what rate of tax applies.

But you must account for the VAT that is due on the return for the tax period in which you receive payment. This is explained in VAT Notice 731: cash accounting.
use a retail scheme should follow the guidance given in VAT Notice 727: retail schemes, but see also [paragraph 30.8 (#supplies-services-general) below.
are newly registered cannot use the rules set out in this section to work out whether you have to account for any tax on a supply which spans your date of registration.

You must follow the time of supply (tax point) rules set out in sections 14 and 15 of this notice to decide whether the supply should be treated as having been made before, or after, the date of registration.

30.2 Definition of a change in tax rate

In this notice a change in tax rate means that the standard rate or reduced rate has been changed or a new rate has been introduced. Any change will apply from a widely publicised date.

30.3 Definition of a change in tax liability

A change in tax liability means that supplies which were taxable at one tax rate - for example, zero rate - become taxable at another - for example, standard rate. It also includes changes involving exempt supplies. This might happen because of a change in the law or in its interpretation.

HMRC will publicise the change, but if you are in any doubt about the tax liability of your supplies or the date of the change, you should contact the VAT: general enquiries helpline.

30.4 Date of change

Any change in the tax rate or liability will be effective from a specific date. This means that tax will be due at the new rate on supplies of the affected goods or services made on, or after, the date on which the change takes effect.

The date on which supplies are treated as being made for VAT purposes is governed by the tax point rules. Any reference to normal tax points in this section means the tax point as defined in sections 14 and 15 of this notice. Normally, no change of rate or liability can apply to any supply with a tax point before the effective date of the change, but see paragraph 30.8 below.

There are special rules for imported goods and warehoused goods (see paragraph 30.17 below).

30.5 Reclaiming input tax after a change in tax rate or liability

When reclaiming input tax following a change in the tax rate or tax liability, you must reclaim it at the rate charged by your supplier.

If… Then you …
you receive a VAT invoice on which tax has been charged at the old rate can treat as input tax only the actual amount of VAT shown.
the amount of tax is not separately shown (for example, if you receive a less detailed VAT invoice - see paragraph 16.6.1) should work out your input tax by applying the VAT fraction which was appropriate at the tax point.
you receive continuous supplies of services invoiced to cover a period up to one year ahead of the supply should see paragraph 30.10 below.

30.6 Completing your VAT Return

You must continue to account for VAT in the period in which the normal tax point occurs. This applies even if you adopt the special rules explained in the following paragraph for deciding the rate of VAT to charge. You should not split the amounts shown on the return between the old and new rules.

30.7 Output tax

30.7.1 General principles

When there is a change in tax rate or tax liability, tax is chargeable in accordance with the normal tax point rules as set out in sections 14 and 15 of this notice, unless you decide to adopt the special change of rate provisions shown below.

Remember, to issue a VAT invoice you must send or give it to your customer for them to keep a tax point cannot be created simply by preparing an invoice. An invoice issued for a zero rated or exempt supply does not create a tax point.

30.7.2 Special change of rate provisions

If you wish, you may choose to adopt the rate or liability in force at the basic tax point for supplies affected by a change of rate or tax liability. You may do this for all your affected supplies or only some of them.

You must not use these provisions if you have issued a VAT invoice under an approved self-billing arrangement (see paragraph 17.4.1) or when goods are sold from the assets of a business in satisfaction of a debt (see paragraph 18.4).

The special provisions operate as explained overleaf.

30.7.3 Using the special provisions when the tax rate or liability goes up

When the amount of VAT to be charged on the supply goes up, you can charge tax at the old rate on goods removed or services performed before the date of the change, even though the tax point would normally be established by the issue of a VAT invoice after the change.

Example

This example shows how the normal rules and the special provisions would apply for a supply of goods affected by an increase in rate of tax in the following circumstances:

  • 1 April: foods removed
  • 5 April: tax rate goes up
  • 10 April: VAT invoice issued

Normal rules

Unless you have decided, under paragraph 14.2.2 of this notice, not to follow the 14 day rule, the date of issue of the VAT invoice is the actual tax point. Tax would be due at the new rate.

If you do not follow the 14 day rule, the date when the goods were removed is the tax point. Tax would be due at the old rate.

Using the special provisions

If you use the special provisions, the basic tax point applies and tax is chargeable at the old rate. The VAT invoice must show the old rate of tax.

30.7.4 Using the special provisions when the tax rate or liability goes down

When the amount of VAT to be charged on the supply goes down, you can charge tax at the new rate on goods removed or services performed after the date of the change, even though payment has been received or a VAT invoice issued before that date.

Example

This example shows how the normal rules and the special provisions would apply for a supply of goods affected by a decrease in rate of tax in the following circumstances:

  • 1 April: VAT invoice issued or payment received
  • 5 April: tax rate goes down
  • 10 April: goods removed

Normal rules

The date of issue of the VAT invoice or receipt of payment is the actual tax point to the extent of the amount invoiced or paid. Tax would be due at the old rate on the amount invoiced or paid.

Using the special provisions

If you use the special provisions, the basic tax point applies and tax is due at the new rate. If you have already issued a VAT invoice showing the old rate of tax, you must correct it by issuing a credit note.

30.7.5 Credit notes

Any credit note should be issued within 45 days after the change and should contain the following details:

  • the identifying number and date of issue of the credit note
  • your name, address and registration number
  • your customer’s name and address
  • the identifying number and date of issue of the VAT invoice
  • a description which identifies the goods or services supplied
  • the amount of VAT being credited

If you receive a credit note in this form, you must follow the procedure described in paragraph 19.9 of this notice.

30.8 Supplies of services - general

When you make a supply of services, such as decorating, part of the work may take place before the date of a change in the tax rate or liability and part on, or after, that date.

In such cases, provided that the supply can be apportioned either:

  • on the basis of measurable work
  • in accordance with your normal costing or pricing system

you may, if you wish, charge tax at the old rate on the part of the work which was performed before the date of the change and at the new rate on the part which was, or is to be, performed on or after that date.

If you issued a VAT invoice before the date of the tax change and apportionment reduces the amount of tax due, you must issue a credit note in accordance with paragraph 30.7.5 above.

30.9 Continuous supplies of goods and services

30.9.1 Normal tax point rules

The tax points for continuous supplies of goods or services (including the supply of goods on hire, lease or rental) are described in paragraph 14.3 of this notice. Tax is normally chargeable at the rate in force at each tax point.

If you issue VAT invoices covering periods up to one year ahead, giving the amounts and dates when payments are due, they are no longer valid for any payments due after the change. Your customers cannot use these invoices to support claims for input tax.

You must issue fresh VAT invoices for the payments due after the change, showing tax chargeable at the new rate. Fresh VAT invoices issued in these circumstances must refer to and cancel that part of the original VAT invoice which has been superseded. On receipt, your customers must adjust their input tax record accordingly.

30.9.2 Using the special provisions

Where a continuous supply spans a change in the tax rate or liability, you may, if you wish, account for tax at the old rate on that part of the supply made before the change, even though the tax point would occur after the change (for example, where a payment is received in arrears of the supply).

Conversely, you may, if you wish, account for tax at the new rate on that part of the supply made after the change, even though the normal tax point occurred earlier (for example, where a payment is received in advance of the supply).

In each case, you should account for tax on the basis of the value of the goods actually supplied or services actually performed, before or after, the change as appropriate. If this procedure reduces the liability to tax of a supply for which a VAT invoice has already been issued at a higher rate, you must issue a credit note in accordance with paragraph 30.7.5.

30.10 Facilities provided by clubs, associations etc

In most cases, the tax point for the supply of facilities by a club or association in return for a member’s subscription is the time when the subscription is received or a VAT invoice is issued, whichever happens first.

The association must account for tax on the goods or services at the rate in force at the tax point. However, if payment is accepted in instalments, or separate invoices are issued, the association should follow the procedure in paragraph 30.9 above.

30.11 Hire-purchase, conditional sale and credit sale

Under any of these types of agreement there is a single supply of goods, and the normal tax point is the earliest of the following:

  • the date of removal of the goods
  • the date of issue of the agreement (provided the agreement is in the form of a VAT invoice)
  • the date of the issue of a separate VAT invoice

At the time of a change you may apply the tax rate in force at whichever of these dates results in a lower rate of tax being chargeable on the supply.

The mere signing of an agreement, or its date, does not itself constitute a tax point.

30.12 Payments and VAT invoices in advance of the basic tax point

If you have… Then…
received a full or a part payment or issued a VAT invoice in advance of the basic tax point tax will normally be due on the amount paid or invoiced at the rate in force at that date (see paragraph 14.2.2).

However

if… Then…
there is a change in the tax rate before the supply is actually made you may choose to account for tax at the rate in force when the supply is actually made, and issue a credit note to correct any VAT overcharged on the original VAT invoice (see paragraph 30.7.5).

30.13 Credits (not arising from the change in rate) and contingent discounts

If you decide to adjust the original tax charge (see paragraph 18.2), tax should be credited at the rate in force at the tax point of the original supply.

Where a contingent discount is allowed and you adjust the original tax charge, tax should be credited at the rate in force at the time of each supply qualifying for the discount.

30.14 Price escalation and other upward adjustment in prices

Where a further payment is required (for example, under a price escalation clause) after a change in the tax rate or liability and after the tax point for the original supply, tax is chargeable on the further payment at the old rate.

This rule applies only to supplies for which the tax point was determined under the rules described in paragraph 14.2 of this notice. In all other cases, the date when you receive further payment or issue a VAT invoice - whichever happens first - is a tax point and tax is chargeable at that time on the amount received or invoiced.

30.15 Existing contracts

If… And… Then…
a contract is made for a supply of goods or services there is a change in the rate of tax or liability before you supply them unless the contract provides otherwise, the price for the supply is increased or decreased by an amount equal to the change

The application of this provision in any particular case depends on the terms of the contract between the parties concerned. HMRC cannot advise on individual cases.

30.16 Second-hand goods

Tax due on the sale of an eligible article under one of the schemes for second-hand goods etc (see paragraph 8.5) is determined by applying to the tax-inclusive margin, the VAT fraction appropriate to the rate of tax in force at the tax point.

The tax point for goods sold under a second-hand scheme is either the date of:

  • removal of the goods
  • the receipt of payment

whichever is earlier.

But if there is a change in the tax rate or liability before the goods are removed, you can, if you wish, account for tax at the rate in force when the goods are removed, even if you have already received payment.

A VAT invoice must not be issued for goods supplied under a second-hand scheme.

30.17 Warehoused goods

30.17.1 Imported goods

When goods are removed from warehouse for home use, the rate of VAT chargeable is that in force at the time of removal.

30.17.2 Home-produced goods subject to Excise Duty which have been supplied whilst in warehouse

The rate of VAT chargeable is that in force when the Excise Duty is paid.

For goods relieved of excise duty, the rate of VAT chargeable is that applicable at the time of their removal from warehouse.

31. Apportionment of output tax

31.1 Introduction to apportionment of output tax

This section gives examples of how to apportion output tax (see paragraph 8.1 of this notice).

There are 2 basic methods of apportioning output tax - one based on cost, the other on market value. There are examples here of both these methods, including an example of apportionment where you can only determine the cost of one of the supplies.

Both methods can be adapted to apply to either tax-inclusive or tax-exclusive amounts, as shown in the examples under Method 1(a).

You do not have to use any of the methods shown here but, if you do use a different method, it must still give a fair result.

Apportionment is only necessary if the price you charge is the only consideration for the supplies (see paragraph 7.3). If the consideration is not wholly in money you must account for VAT on the open market value of the supplies, as explained in paragraph 7.4.

31.2 Examples of methods for apportioning output tax

The examples assume that the standard rate of VAT is 20% and the VAT fraction is therefore 1/6.

31.2.1 Method 1(a) An apportionment based on the cost of both supplies

Example 1: VAT-inclusive price

You make a zero-rated supply and a standard-rated supply and you charge an inclusive price of £139. The cost (see paragraph 7.6) of the zero-rated supply is £23 and the tax-exclusive cost of the standard-rated supply is £40.

  You can work out the VAT and the tax values like this:  
(a) Total price (including VAT) £139
(b) Cost of zero-rated supply £23
(c) Cost of standard-rated supply £40
  To work out the VAT on the standard-rated supply:  
(d) Multiply (c) by the standard rate of VAT: £40 × 20% = £8  

To work out the cost of the standard-rated supply including VAT:

(e) Add (c) and (d): £40 + £8 = £48

To work out the total cost, including VAT, of both supplies:

(f) Add (b) and (e): £23 + £48 = £71

To work out what proportion the standard-rated supply forms of the total cost:

(g) Divide (e) by (f):

£48 divided by £71 = 0.6760

To work out the amount of the total price formed by the standard-rated supply:

(h) Multiply (g) by (a): 0.6760 × £139 = £93.96

This is the VAT-inclusive price of the standard-rated supply.

To work out the VAT included in this amount:

(i) Multiply (h) by the VAT fraction:

£93.96 divided by six = £15.66

To work out the tax value of the standard-rated supply:

(j) Subtract (i) from (h):

£93.96 - £15.66 = £78.30

To work out the tax value of the zero-rated supply:

(k) Subtract (h) from (a): £139 - £93.96 = £45.04

So the price of £138 is apportioned like this

Value of standard-rated supply = £78.30

VAT on standard-rated supply = £15.66

Value of zero-rated supply = £45.04

Total price (including VAT) = £139.00

Example 2: VAT- exclusive price

For the purpose of this example, the circumstances are identical to those described in example 1 except that you are calculating VAT on the basis of a tax-exclusive selling price of £126.

The VAT and tax values are therefore calculated as follows:

(a) Total price (excluding VAT) £126

(b) Cost of zero-rated supply £23

(c) Tax-exclusive cost of standard-rated supply £40

To work out the cost of both supplies:

(d) Add (b) and (c): £23 + £40 = £63

To work out what proportion the standard-rated supply forms of the total cost:

(e) Divide (c) by (d):

£40 divided by £63 = 0.6349

To work out the amount of the total price formed by the standard-rated supply:

(f) Multiply (e) by (a): 0.6349 × £126 = £80

This is the tax value of the standard-rated supply, excluding VAT.

To work out the VAT on the standard-rated supply:

(g) Multiply (f) by the standard rate of VAT: £80 × 20% = £16

To work out the tax value of the zero-rated supply:

(h) Subtract (f) from (a): £126 - £80 = £46

31.2.2 Method 1(b) An apportionment based on the cost of one supply only

You make a standard-rated supply and a zero-rated supply and you charge an inclusive price of £144. The zero-rated supply is of goods which cost you £28 - but the standard-rated supply is of services, the costs of which you cannot identify.

You can work out the VAT and the tax values like this:

(a) Total price (including VAT) £144

(b) Cost of zero-rated supply £28

To work out the value of the zero-rated supply:

(c) Add an uplift to (b): £28 + (say) 50% = £42

The actual cost-to-value uplift you apply will depend on the specific circumstances, but it must be a fair and reasonable figure, consistent with the profit margins actually achieved in your business.

To work out the amount of the total price formed by the standard-rated supply:

(d) Subtract (c) from (a): £144 - £42 = £102

To work out the VAT included in this amount:

(e) Multiply (d) by the VAT fraction:

£102 divided by six = £17.00

To work out the value for VAT of the standard-rated supply:

(f) Subtract (e) from (d): £102 - £17.00 = £85.00

So the price of £142 is apportioned like this:

Value of standard-rated supply £85.00

VAT on standard-rated supply £17.00

Value of zero-rated supply £42.00

Total price (including VAT) £144.00

31.2.3 Method 2 An apportionment based on market values

You make a zero-rated supply and a standard-rated supply and charge an inclusive price of £200. Normally, your customer would have to pay £50 for the zero-rated supply and £200 (including VAT) for the standard-rated supply.

You can work out the tax values and the tax due like this:

(a) Total price (including VAT) £200

(b) Normal price for zero-rated supply £50

(c) Normal price (including VAT) for standard-rated supply £200

To work out the normal price for both supplies:

(d) Add (b) and (c): £50 + £200 = £250

To work out what proportion the standard-rated supply forms of the total normal price:

(e) Divide (c) by (d):

£200 divided by £250 = 0.8

To work out the amount of the total price formed by the standard-rated supply:

(f) Multiply (a) by (e): £200 × 0.8 = £160

This is the VAT-inclusive price of the standard-rated supply.

To work out the VAT included in this amount:

(g) Multiply (f) by the VAT fraction:

£160 multiplied by 7 divided by 47 = £23.83

£160 divided by six = £26.67

To work out the tax value of the standard-rated supply:

(h) Subtract (g) from (f): £160 - £26.67 = £133.33

To work out the tax value of the zero-rated supply:

(i) Subtract (f) from (a): £200 - £160 = £40

So the price of £200 is apportioned like this:

Value of standard-rated supply £13.33

VAT on standard-rated supply £26.67

Value of zero-rated supply £40.00

Total price (including VAT) £200.00

32. Apportionment of tax between business and non-business activities

32.1 Introduction to apportionment between activities

This section explains how to treat tax incurred on goods or services that are used only partly for business purposes (see paragraph 4.6.6).

There are special rules for private use of road fuel. These are set out in VAT Notice 700/64: motoring expenses.

32.2 Need for apportionment

You cannot treat VAT incurred on purchases of goods and services as input tax unless you intend to use those goods or services for the purposes of your business.

32.2.1 Services

If you buy services for both business and non-business (including private) purposes, you can treat only part of the VAT as input tax. You must work out what proportion of the use of the services is for business purposes. This is called apportionment. You can then make any further apportionment for partial exemption purposes.

32.2.2 Goods

If you buy goods for both business and private purposes, you may apportion the tax in the same way as you would for tax on services. However, if you choose, you may reclaim all the tax on the goods as input tax and then go on to account for output tax in each accounting period on the costs of making the goods available for private purposes.

32.3 Private use

If you buy goods or services for both business and private use, you must first decide on the percentage of business use. You can then work out the amount of VAT you can treat as input tax.

For example, if the VAT on the purchase is £100 and only one quarter is used for business purposes the input tax will be:

£100 divided by 4 = £25

32.4 Non-business activities

If you use goods or services partly for non-business activities - for example, if your organisation is a charity - you will not be able to treat all the VAT you pay as input tax.

You should begin by identifying, as far as you can, VAT on those purchases that are wholly attributable to either a business or a non-business use. Remember, VAT on purchases used wholly for non-business purposes is not input tax.

The VAT incurred on your remaining purchases, which you cannot attribute wholly to a business or non-business use, must then be apportioned. There is no special method of apportionment but your calculations must be fair and reasonable, and you must be able to justify them.

32.5 Example of a method of apportionment

This example shows how you can apportion VAT based on your income.

You should exclude from the calculation:

  • the VAT on purchases which will be used wholly for either business or non-business purposes and deal with this as set out above
  • purchases on which you can never reclaim input tax (see paragraph 10.3)

For the purposes of this example:

  • you pay £1,000 VAT on purchases which are used for both business and non-business purposes
  • your income from business activities (taxable and exempt supplies) amounts to £20,000 per year
  • your total income from all sources, including business activities, grants and donations, amounts to £50,000 per year

You can work out your input tax like this:

(a) Total VAT paid £1,000

(b) Income from business activities £20,000

(c) Total income £50,000

To work out the proportion which is business income:

(d) Divide (b) by (c):

£20,000 divided by £50,000 is equal to two fifths

To work out how much of the VAT you have paid you can treat as input tax:

(e) Multiply (a) by (d):

£1,000 multiplied by two fifths = £400

This is your provisional input tax for the VAT period.

At the end of each… You…
tax period can reclaim the input tax provisionally, subject to the normal rules.
tax year should make an adjustment by making the same calculation using your total figures for the year.
If your returns are… Then your tax year ends on…
Quarterly 31 March, 30 April or 31 May depending on the tax periods that you have been allocated.
Monthly 31 March

Remember, you do not have to use this method. If you consider that it is not suitable for your circumstances you can use any other formula, provided it produces a fair and reasonable result. See below.

32.6 Other methods of apportionment

These may include:

  • keeping a record of the use made of an object (for example, a yacht or aircraft)
  • keeping a record of the time spent by employees on business and non-business activities
  • calculating within a building the extent to which the floor area is used for business and non-business purposes

Whatever formula you use, the input tax is only reclaimed provisionally at the end of each tax period. At the end of each tax year you should make the adjustment as explained above.

When visiting you, VAT officers will check to make sure that the amount treated as input tax is fair and reasonable. If you have agreed a particular method with HMRC but consider it is no longer suitable, you should write to the VAT Written Enquiries Team giving details of your proposed new method.

32.7 Partial exemption

If you are partly exempt, you must work out how much VAT you can treat as input tax before you deal with any partial exemption calculations (see paragraph 13.1).

A list of standard abbreviations for statutory references is set out below. The list also indicates those references which should begin in the upper case.

Full stops are used in law to indicate abbreviations. To help computer systems used by the trade, when you refer to the law you should normally leave out any full stops used to indicate abbreviations.

Statutory reference Singular Plural
Article (of EC directives) art arts
article (of UK Treasury order etc) art arts
chapter c cs
Customs and Excise Management Act 1979 CEMA -
clause cl cls
Directive Dir Dirs
EC Regulation EC Reg EC Regs
Finance Act, 1999 FA 1999 -
Finance Bill, 1999 FB 1999 -
Group Gp Gps
item it its
Note Note Notes
paragraph para paras
part Pt Pts
regulation reg regs
Schedule Sch Schs
section s ss
Statutory Instrument SI SIs
Value Added Tax Act, 1994 VATA 1994 -

34. Index

This index covers information available in HMRC publications.

A full list of VAT publications is available in Notice 999: catalogue of publications.

Subject References in this notice References in other publications
A    
Abattoirs   701/40
Academies, VAT refund scheme   VAT Information Sheet 09/11
Accommodation    
- camping   709/3
- domestic 12.2  
- employees’ subsistence expenses 12.1  
- in hotels etc   709/3
Accounts - see Records and accounts    
Acquisition    
- registration 6.2.1 700/1
- Single Market 5.7.3 725
Adjudicator’s Office 2.9  
Admission to premises    
- betting and gaming premises   701/29
- bingo halls   701/29
- charitable events   700/1, CWL4
Advertising for charities   701/58
Agents    
- general sections 22 to 25  
- betting   701/29
- catering   709/1
- EU and international supplies involving UK undisclosed agents section 24  
- export 25.3  
- forwarding and shipping   702
- registration of 22.7  
- search agencies 25.5  
- supplies by 22.3 to 22.6  
- VAT invoices section 23  
Agricultural flat rate scheme 26.13 700/46
Air conditioning   701/19
Aircraft    
- housing or storage of 29.2.16 744C
- parts and equipment 29.2.16 744C
- stores for   703
- supplies of 29.2.16 744C
- transport in   744A
Amusement and gaming machines   701/29
Animals 29.2.10 701/15
Annual accounting scheme 20.6 732
Antiques and works of art    
- disposals from stately homes   701/12
Appeals    
- general section 28  
- default surcharge 21.2.2 700/50
- reasonable excuse and mitigation 27.6  
Apportionment    
- input tax 4.6.6section 32  
- output tax 8.1section 31  
Apportionment Scheme (Retail schemes)   727/4, 727
Art works, disposals from stately homes 29.4.19 701/12
Assessments 21.2.1 915
Assets, business    
- on cancellation of registration   700/11
Associations    
- general 29.4.4 701/5
- political parties, trade unions, professional and trade   701/5
Auctions and auctioneers    
- as agents 25.2  
- goods sold for export   703, 704
- goods sold in satisfaction of a debt 18.4.1  
- scheme   718
Authenticated receipts 17.4.2 708
Avoidance schemes, disclosure   700/8
B    
Bad debt relief 18.5 700/18
Bank account, change of 26.3  
Bank notes 29.2.1  
Bankruptcy - see Insolvency    
Banks   701/49
Barristers and advocates, fees on ceasing to practice   700/44
Barter 7.48.7  
‘Belonging’ 4.8.3 741A
Bespoke retail schemes   727/2, 727
Betting and gaming 29.4.1 701/29
Bingo   701/29
Boats - see also Ships and shipping    
- houseboats   701/20
- lifeboats   744C
- mooring and storage   742, 744C
- sailaway exports   703/2
Booking fees 8.13 709/3
Book tokens   701/10, 727/3, 727/4, 727/5
Books 29.2.2 701/10
Boots, protective 29.2.17 701/23
Building and construction    
- general 29.2.629.3.5 708
- ‘do-it-yourself’ builders   Forms VAT 431NB and VAT 431C, and guidance
- people with disabilities 29.2.7 701/7
- stage payments 15.3 708
- zero-rating, VAT certificates   708
Buildings    
- protected   708
- commercial 29.2.1529.4.14 742
Burial and cremation 29.4.2 701/32
Business    
- activities 4.6  
- entertainment   700/65
- promotion schemes   700/7
C    
Cable-suspended Passenger Transport Systems 29.3.1  
Camping   709/3
Cancellation charges 8.13 709/3
Cancellation of registration – see Registration, cancellation of    
Capital goods scheme 13.2 706/2
Car seats, children’s 29.3.3 701/23
Caravans    
- civil engineering services for permanent parks   708
- general 29.2.329.3.2 701/20
- accommodation in   701/20, 709/3
- pitches   742, 701/20, 709/3
Care   701/31, 701/1
Cars - see Motor vehicles    
Cash accounting scheme 19.3 731
Cash and carry till rolls 17.219.7.2  
Cashbook accounting 19.8.3  
Catering    
- general 29.2.10 709/1
- industrial   709/1
- in hotels etc   709/3
- in hospitals   709/1
- place of supply   741A
Changes in tax rates and liability 3.7section 30  
Change in business circumstances section 26  
Channel Islands 4.7.3  
Charities    
- advertising 29.2.429.4.3 701/58
- general 29.2.429.3.3 701/1
- new buildings and annexes   708
- business and non-business activities of 4.6 701/1
- fund-raising events 29.4.3 701/1CWL4
- medicinal products   701/1
Charity funded equipment   701/6
Chemists, pharmaceutical   701/57
Children’s car seats 29.3.4 701/23
Children’s clothing and footwear 29.2.5 714
Churches   701/1
Civil engineering   708
Civil penalty investigations   730
Clothing and footwear 29.2.5  
- young children’s   714
- protective boots and helmets   701/23
Clubs and associations    
- general 29.4.4 701/5
- professional and trade   701/5
- youth clubs   701/35
Coal and coke   701/19
Commemoration of the dead 29.4.2 701/32
Commission 22.3  
Commodity markets   701/9
Competitions    
- lotteries 29.4.1 701/29
- sport 29.4.5 701/45
Complaints 2.9 989
Computers    
- capital goods scheme 13.2 706/2
- imports of software   702
- invoicing 17.7  
Concessions, extra-statutory 2.6 48
Contingent discounts 7.3.2, 18.2  
Conditional sale 8.4  
Confectionery   701/14
Consideration 7.2 to 7.4  
Construction industry - see Building and construction 29.2.629.3.5  
Containers    
- international transport   703/1
- returnable 8.2  
Contingent discounts 7.3.2c18.2  
Contraceptive products 29.3.5 701/57
Conversion of foreign currency 7.716.4  
Corporate Purchasing Cards   701/48
Correspondence courses   701/30
Cost sharing group exemption 29.4.6 VAT Information Sheet 07/12
Coupons, price reduction   700/7, 727
Courts, costs awarded 25.6  
Crash helmets   701/23
Credits and debts – general section 18  
Credit    
- grants of   701/49
- sale 8.4  
- time of supply 15.11  
Credit and charge cards    
- companies   701/49
- use of vouchers as VAT invoices 16.6.1  
Credits and credit notes 18.219.619.9 700/21
Cremation 29.4.2 701/32
Cultural exemption 29.4.7 701/47
Currency conversion 7.716.4  
D    
De minimis rules (partial exemption) 13.1 706
Dealer loader concessions   700/7
Death of taxable person 26.7 to 26.8  
Debits and debit notes 18.2  
Debt    
- bad debt relief 18.5 700/18
- collectors 25.6  
- factoring   701/49
- goods sold in satisfaction of 8.1118.4  
Default interest 27.7 700/43
Default surcharge 21.2.2 700/50
Deferment of VAT on imports 5.2 101, 702
Delivery charges 8.3 700/24
Demolition services   708
Dentists   701/57
Deposits    
- booking fees 8.13 709/3
Deregistration - see Registration, cancellation of    
Derivative and terminal markets 29.4.8 701/9
Destroyed goods 8.10  
Direct Calculation Scheme (Retail schemes)   727/5, 727
Disabled relief 29.2.7 701/7
Disbursements 25.1  
Discounts 7.3.218.2  
Distance selling   700/1, 725
Divisional registration 26.5 700/2
‘Do-it-yourself’ builders   Forms VAT 431NB and VAT 431C, and guidance
Doctors   701/57
Donations   701/1, 701/41
Drinks   701/14
Drugs etc, prescribed 29.2.8 701/57
Dwellings, construction/ creation etc   708
E    
EC refunds   723A
EC Sales Lists 5.7.1 725
Education 29.4.9 701/30
Effective date of registration   700/1
Elderly, mobility aids for 29.3.11 Revenue and Customs Brief 47/07
Electricity   701/19
Electronic invoicing   700/63
Election to waive exemption - see Option to Tax    
Employees    
- accommodation in hotels etc 12.1.3  
- catering for 12.1 709/1
- goods for private use 9.3.1  
- goods for work use 4.4  
Employment training   701/30
Energy-saving materials 29.3.6 708/6
Entertainment    
- business   700/65
Errors    
- on VAT invoices 19.10  
- on VAT returns 19.11 700/45
- Department, interest on 2.7  
Estimated figures, use of on VAT returns 21.2.3  
Evasion 27.4  
Exchange units 8.6  
Exempt supplies - see also Partial exemption    
- Option to Tax 3.6 742A
Exemption from registration 26.12 700/1
Exports    
- general 5.6 to 5.729.2.9 703
- by charities   701/1
- motor vehicles   707
- retail exports (overseas residents)   704, 704/1
- retail exports (UK residents and ships etc crews)   704, 704/2
- sailaway boats   703/2
- tools for manufacture of goods for   701/22
Extra-statutory concessions 2.6 48
F    
Face Value Vouchers   700/7
Finance 29.4.10 701/49
Finance companies - hire purchase 8.4 701/49
Financial penalties - see Penalties    
Fiscal warehousing   702/8
Fishing rights   742
Flat rate scheme 19.3A 733
Flowers   701/38
Food    
- general 29.2.10 701/14
- animal   701/15
- catering and take-away 29.2.10 709/1
- catering, industrial   709/1
- processing services   701/40
Footwear - see Clothing and footwear 29.2.5  
Force of law, VAT notices having the   747
Forces, visiting 8.15 48
Foreign currency, conversion 7.7  
Foreign exchange, dealings with 7.716.4 701/49
Free zones 5.5 702/9
Freight    
- containers   703/1
- transport of 29.2.16 744B
Fuel and power 29.3.7 701/19
Fuel Scale Charges   700/64
Funded pension schemes   700/17
Fundraising events, charities   701/1
Funerals and funeral directors   701/32
G    
Galleries, refund scheme   998
Game, right to take   742
Gaming 29.4.1 701/29
Gaming machines   701/29
Gas    
- liability   701/19
- time of supply 14.315.6  
Gifts, business 8.9 700/7
Global Accounting   718
Going concern, transfer of, see Transfer of going concern    
Gold and investment gold coins 29.2.11 701/21, 701/21A
Goods    
- definition of supply 4.4  
- employees’ private use 9.319.5  
- employees’ work use 4.4  
- free repair and replacement 18.3  
- imports and exports section 5 702, 703, 704, 707
- lost, stolen or destroyed 8.10  
- personal or private use 9.315.1  
- place of supply 4.8  
- returned 18.3  
- sold in satisfaction of a debt 18.4  
Government departments 8.15  
Grant funded installation of heating equipment or security goods 29.3.9 708/6
Grants 4.6.5(a) 701/41
Grazing rights   701/15
Group treatment 26.4 700/2
H    
Handicapped people   371, 701/6, 701/7 and 744A
Health (see also Medical services) 29.2.1229.4.11 701/31, 701/57
Health authorities 8.15  
Health professionals   701/57
Heat and heating   701/19
Heating equipment, grant funded 29.3.8 708/6
Helmets, protective 29.2.17 701/23
Hire    
- of goods 4.4  
- motor vehicles   700/64
Hire purchase    
- general 8.4  
- time of supply 15.11  
Holidays and holiday services    
- accommodation   709/3
- tour operators   709/5
Home brewing kits   701/14
Horses - Racehorse Owners’ Scheme   700/67
Hospitals    
- catering in   709/1
- medical services in   701/31
Hotel accommodation 29.3.9 709/3
Houseboats 29.2.329.3.2 701/20
Houses - see Building and construction    
I    
Ice cream   701/14
Imported goods, VAT relief   143
Imports    
- general section 5, 29.2.13 702
- computer software   702
- deferment of VAT 5.2 101, 702
- records and accounts 19.7.3 700/2, 700/21
- services 5.415.12 741A
Incapacity of taxable person 26.7  
Indemnities under property lease agreements   742
Information and advice – sources of section 1  
Input tax    
- apportionment section 32  
- business entertainment   700/65
- cars 10.3  
- claims from abroad 10.7 723A
- evidence for deduction of 19.7 700/21
- exempt supplies 13.1 706
- goods dwellings and residential buildings   708
- mobile phones provided to employees 12A  
- parking fees 19.7.5  
- pre-registration expenses section 11 700/1
- records and accounts 19.7 700/21
- VAT paid in other countries 10.7 723A
- vending machines 19.7.5  
Insolvency    
- of a customer 18.5 700/18
- of a registered person 26.9 700/56
- sale of goods 18.4  
Installed/assembled goods   725
Insurance    
- general 29.4.12 701/36
- guarantees or insurance for cancellation charges 8.13 701/36
- surrender of damaged goods 8.10  
Intending traders   700/1
Interest, in cases of Departmental error 2.7  
Interest payments (liability)   701/49
Intermediary services 29.2.14  
International post users   143
Intra-EU supplies 5.7 725
Intrastat 5.7.2 60
Investment gold 29.4.13 701/21, 701/21A
Invoices - see VAT invoices    
Isle of Man    
- general 4.7  
- registration of persons 26.6  
J    
Joint and several liability for unpaid VAT   726
Joint employment   700/34
L    
Land and property    
- supplies of 29.2.1529.4.14 742
- property development   742
Late registration penalty 27.2 700/41
Learned societies 29.4.18 701/5
Lease - see Hire of goods    
Liability    
- zero-rated, reduced-rated and exempt supplies section 29  
Lifeboats   701/1, 744C
Limited company, creation or dissolution of 26.2  
Linked goods schemes   700/7, 727/3, 727/4, 727/5
Liquidated damages   708
Liquidator    
- appointment of 26.9  
- sale of goods by 18.4.3  
Listed buildings   708
Local authorities 6.1.24.6.5(d), 8.15 749
Lotteries 29.4.1 701/29
M    
Machine Games Duty 29.4.15 452
Mail order 8.3 700/24
Management services (land and property)   742
Margin Scheme   718
- Auctioneers’ Scheme   718/2
- Global Accounting   718
- second-hand cars and other vehicles   718/1
Meals    
- for employees 12.1 709/1
- on wheels   701/1
Medical services    
- general   701/31, 701/57
- medical and surgical appliances   701/7, 701/6
Medicines 29.2.8  
Membership facilities    
- clubs and associations   701/5
- professional and trade associations, learned societies and trade unions   701/5
- youth clubs   701/35
Merchandise in baggage   6
Meters - gas and electricity   701/19
Microfilm and microfiche records 19.2.4  
Mileage allowances   700/64
Mineral rights   742
Misdirection by a VAT officer 2.5 48
Mixed supplies 8.1section 31  
Mobile homes - see Caravans    
Mobile phones provided to employees 12A  
Mobility aids for the elderly 29.3.10 Revenue and Customs Brief 47/07
Money, dealings with   701/49
Monuments, scheduled   708
Mooring rights    
- general   742, 744C, 701/45
- houseboats   701/20
Motorcycles - see Motor vehicles    
Motoring expenses 9.2 700/64
Motor vehicles   700/64
- classic/vintage cars   702
- conversion of, value for VAT   700/64
- deduction of input tax 10.3 700/64
- definition of ‘car’   700/64
- exports of vehicles by customers   707
- insurance   701/36
- lease or hire of   700/64
- MOT charges 25.4  
- parking facilities   742
- New Means of Transport   728
- repair and maintenance   700/64
- scale charges   700/64
- self-supplies 19.5.3  
- vehicles for disabled people and charities   701/6, 701/59
- vintage/classic cars   702
Museums, refund scheme   998
N    
National Advice Service – see VAT Helpline    
Newspapers 29.2.2 701/10
New Means of Transport   725, 728
Non-business use    
- definition 4.6  
- apportionment of input tax section 32  
- cars   700/64
- charities   701/1
- records and accounts 19.5.2  
- road fuel   700/64
Non-Established Taxable Persons (NETP)   700/1Revenue and Customs Brief 31/12
Non-Departmental public bodies 8.15  
Nurseries, crèches and playgroups   701/31
Nursing concession   701/57
O    
Oil   701/19
Open market value 7.4  
Opticians and ophthalmic services   701/57
Option to Tax 3.6 742A
Outputs and output tax    
- apportionment of 8.1section 31  
- records and accounts 19.5 700/21
Overpaid VAT, repayment of 19.13  
Overseas persons    
- repayment of UK VAT to   723A
- retail exports by   704, 704/1
Overseas refunds   723A
P    
Packaging 8.2  
Parking    
- input tax on fees 19.7.5  
- supplies of facilities   742
Partial exemption    
- general 13.1 706
- capital goods scheme 13.2 706/2
- motoring expenses   700/64
- self-supply of stationery   706/1
Partnership    
- change in composition of 26.3  
- creation of 26.2(c)  
- dissolution of 26.2(d)  
Passenger transport 29.2.16 744A
Payment    
- on account (POA) 21.7 700/60
- methods of 21.3  
- failure to pay 21.2.4 930
Payphones 8.12.1  
Penalties    
- general section 27  
- civil evasion 27.4.2  
- late registration penalty 27.2 700/41
- misdeclaration penalty and repeated misdeclaration penalty 27.3 700/42
Pension schemes   700/17
People with disabilities    
- aids for   701/7
- building alteration for   701/7
- motor vehicles supplied to   701/59
- talking books   701/1
Period rates of exchange 7.7  
Periodicals 29.2.2  
Pet food   701/15
Petrol - see Road fuel    
Pharmacists   701/57
Philatelic supplies 29.4.16 701/8
Phonecards 8.12.2 700/7, 727/3, 727/4, 727/5
Photocopying   701/10
Place of supply    
- goods 4.8.2  
- services 4.54.8.3, 10.2, 29.2.21 741A
Plants   701/38
Point of Sale Scheme (Retail schemes)   727/3, 727
Political parties   701/5
Post users, International   143
Postage and packing 8.3 700/24
Postage stamps 29.4.16 701/8
Power    
- liability 29.3.8 701/19
- time of supply 15.6  
Premises, sharing of   742
Printed matter   701/10
Printed matter – charities   701/58
Private use    
- goods and services 9.3  
- value for VAT 7.6  
Prizes    
- betting and gaming   701/29
- bingo   701/29
- clubs and associations   701/5
- sports competitions   701/45
Processing of goods 4.5  
Professional bodies 29.4.18 701/5
Promotion schemes, business   700/7
Pro-forma invoices 17.3  
Prompt payment discounts 7.3.2, 18.2  
Property    
- commercial 29.4.14 742
- development   742
- ownership 29.4.14 742
Protected buildings   708
Protective boots and helmets 29.2.17 701/23
Qualifying aircraft   744C
Qualifying ships   744C
R    
Racehorse owners’ scheme   700/67
Raffles   701/29
Rates of exchange 7.7  
Reasonable excuse 27.6  
Receiver   700/56
- appointment of 26.9  
- sale of goods by 18.4.3  
Records and accounts    
- general section 19 700/21
- cashbook accounting 19.8.3  
- computer 17.7  
- credit notes 18.219.619.9  
- debit notes 18.2, 19.9  
- imports (of goods) 19.7.3 702
- inputs and input tax 19.7 to 19.8  
- motoring expenses   700/64
- non-deductible items 19.8.2  
- outputs and output tax 19.5  
- retention of 19.2  
- requirement to maintain 19.2  
- retailers   727
- rounding off 17.5  
- services received from abroad   702, 741A
- VAT invoices sections 16 and 17  
- VAT account 19.12  
- warehoused goods 19.7.3 702/9
Reduced-rated supplies 3.4section 29  
Refrigeration   701/19
- ‘do-it-yourself’ builders   Forms VAT 431NB and VAT 431C, and guidance
- paid in other countries 10.7 723A
Registered person 6.1.4  
Registration for VAT    
- general section 6 700/1
- acquisitions 6.2.1 700/1
- agents 22.7  
- amendment of 26.3  
- distance sales 6.2.2 700/1
- divisional 26.5 700/2
- exemption from 26.12 700/1
- group treatment 26.4 700/2
- intending traders   700/1
- Isle of Man 26.6  
- joint ventures 6.8  
- late registration penalties   700/41
- Non Established Taxable Persons (NETPs) and unregistered UK businesses 6.2.3 700/1, Revenue and Customs Brief 31/12
- reverse charge services 5.4 741A
- voluntary 6.1.2 700/1
Registration, cancellation of    
- changes requiring 26.2 700/11
- voluntary 26.11 700/11
Repair of goods 8.6  
Repayment    
- claims for repayment of overpaid VAT 19.13  
- repayment returns   700/58
- supplement 21.6 700/58
Research   701/30
Residential buildings, construction/creation etc   708
Retail Export Scheme   704, 704/1
Retail schemes    
- general   727
- Apportionment Scheme   727/4
- bespoke retail schemes   727/2
- catering   727, 709/1
- Direct Calculation Scheme   727/5
- phonecards 8.12.2 700/7, 727/3, 727/4, 727/5
- Point of Sale Scheme   727/3
Retention of records 19.2 700/21
Retention payments 15.4 708
Returnable containers 8.2  
‘Reverse charge’ services 5.4 741A
Reverse charge on specified goods and services   735
Road fuel    
- VAT invoices for 17.1 700/64
Road Fuel Scale Charges   700/64
Roads   708
Royalties 15.8, 25.1  
S    
Sale of business 26.226.7 to 26.9  
Sale or return (time of supply) 14.4  
Samples of goods 8.8  
Sanitary protection products 29.3.13 701/18
Scheduled monuments   708
Schools   701/30
Scottish land law   742/3
Second-hand goods 8.5 718
Securities, dealings in 29.4.10 701/49
Security goods, grant funded 29.3.8 708/6
Search agencies 25.5  
Seeds   701/38
Self-billing 17.4  
Self-supply    
- building services 9.215.219.5.3 708
- motor vehicles 9.215.219.5.3 700/64
- stationery 9.215.219.5.3 706/1
Service charges and tips 8.14  
Services    
- imported, time of supply (tax point) 15.12 741A
- place of supply 4.8 741A
- received from outside the UK 5.4 741A
- ‘reverse charge’ 5.4 741A
- supply of 4.5  
Sewerage services 29.2.20 701/16
Ships and shipping    
- parts and equipment   744C
- liability   744C
- retail exports by crews   704/2
Shoes - see Clothing and footwear    
The single currency   920
Single Market    
- acquisition 5.8.3 725
- acquisition registration   700/1
- despatches 5.7  
- distance selling   700/1, 725
- EC Sales Lists 5.7.1 725
- Intra-EU supply 5.7 725
- Intrastat 5.7.2 60
- installed/assembled goods   725
- New Means of Transport   725, 728
- Tax representatives   725
- triangulation   725
Slaughterhouses   701/40
Smoking cessation products 29.3.11 701/57
Solicitors’ charges 25.6  
Sponsorship   701/41
Sport 29.4.17 701/45
- competitions 29.4.5 701/45
Staff    
- supply of   700/34
- entertainment 12.1.4  
- Nursing concession   701/57
Stage payments 15.3  
Stamps, postage   701/8
Stately homes, disposal of antiques and works of art   701/12
Stationery    
- liability   701/10
- self-supply 9.215.219.5.3 706/1
Stocks and assets    
- disposals of 9.1  
- on cancellation of registration   700/11
Stolen goods 8.10  
Sub-contractors, rules for zero-rating building work   708
Subscriptions    
- charities   701/1
- clubs and associations   701/5
- professional bodies and trade associations   701/5
- trade unions   701/5
- youth clubs   701/35
Subsistence expenses for employees 12.1  
Supply    
- of goods 4.4  
- of services 4.5  
- of staff   700/34
- mixed 8.1section 31  
- place of 4.8  
- taxable section 3  
- time of sections 14 and 15  
Surcharge - see Default surcharge    
T    
Take-away food   709/1, 701/14
‘Talking books’ for people with disabilities   701/1
Tax avoidance 2.3  
‘Tax Free Shopping’ - the Retail Export Scheme   704, 704/1
Tax periods 20.5  
Tax point - see Time of supply    
Tax representatives   725
Tax value - see Value for VAT    
Tax warehousing   702/10
Taxable    
- person section 6 700/1
- turnover 6.1.2 700/1
Taxis and hire cars   700/25
Taxpayer’s Charter 2.8  
Teleflorist   727
Terminal markets 29.4.8 701/9
Theft of goods 8.10  
Timber, right to fell   742
Time of supply (tax point)    
- general sections 14 and 15  
- construction services 15.2 708
- continuous supplies 14.315.6  
- credit sale and hire-purchase 15.11  
- imported services 15.12  
- personal or other non-business use 15.1  
- power, heat etc 15.6  
- property 15.9  
- retention payments 15.4 708
- royalties and similar payments 15.8  
- sale or return 14.4  
- self-supplies of stationery 15.2 706/1
- self-supplies of cars 15.2  
- stage payments 15.3  
- tax point rules sections 14 and 15  
Timeshare holiday accommodation   709/3
Tools for manufacture of goods for export 29.2.18 701/22
Tour operators   709/5, 709/6
TOMS   709/5
Trade unions 29.4.18 701/5
Trading name, change of 26.3  
Trading stamps   700/7, 727
Training    
- liability   701/30
Training services supplied to overseas governments 29.2.19 741A
Transfer of a going concern 26.10 700/9
Transport 29.2.16 744A, 744B
Travel agents   709/6
Triangulation   725
Tribunals - see Appeals    
Turnover, taxable 6.1.2 700/1
U    
Unconditional discounts 7.3.2, 18.2  
Undertakers   701/32
United Kingdom, definition for VAT purposes 4.7  
Universities   701/30
Unjust enrichment 19.13  
V    
Value for VAT    
- barter 7.48.7  
- cost of supply 7.6  
- discounts 7.3.2, 18.2  
- imported goods   702
- imported services   741A
- intra-community acquisitions of goods   725
- open market value 7.4  
- part exchange 7.48.7  
- private or personal use 7.69.3  
VAT Central Unit (VCU) 20.2  
VAT certificates - zero-rating (eligible buildings)   708
VAT fraction 7.3.1  
VAT Helpline 1.5  
VAT invoices    
- general sections 16 and 17 700/21
- agents’ section 23  
- calculation of VAT on (rounding of amounts) 17.5  
- calculation of VAT at retailers 17.6  
- cash and carry till rolls 17.219.7.2  
- computer invoicing 17.7  
- credit card vouchers, use of 16.6.1  
- electronic invoicing   700/63
- errors on 19.10  
- information required on 16.3  
- pro-forma 17.3  
- self-billing and authenticated receipts 17.4  
- sterling, conversion into 16.4  
- transmission by fax 17.8.1  
- transmission by e-mail 17.8.2  
- zero-rated and exempt supplies 16.5  
VAT publications   999
VAT Retail Export Scheme   704, 704/1
VAT return    
- general sections 20 and 21  
- completion of 20.4 700/12
- errors on previous 19.11 700/45
- estimated figures on 21.2.3  
- methods of payment 21.3  
Visiting forces 8.15 431
Visits by HMRC officers 2.2 989
Vocational training 29.4.9 701/30
Voluntary disclosure – now known as VAT Error Corrections 19.11 700/45
Voucher schemes (self-liquidators)   700/7
W    
Warehousing 5.3 179, 197, 232, 702/9
Water   701/16
- general 29.2.20 701/16
- first time mains connection   708
Welfare 29.3.12 701/1, 701/2
Warehousing    
- Fiscal   702/8
- Tax   702/10
Women’s sanitary protection products 29.3.13 701/18
Work on goods for export from the EU 29.2.21 741A
Works of art etc, disposals from stately homes 29.4.19 701/12
Y    
Yachts   8
Youth clubs   701/35
Youth Training   701/30
Z    
Zero-rated supplies 3.5section 29  

Your rights and obligations

For an explanation of what you can expect from HMRC and what HMRC expects from you, read Your Charter.

Comments or suggestions about this notice

If you have any comments or suggestions to make about this notice, please write to:

HM Revenue and Customs
Business Services and Taxes
Customer Focus Team
New King’s Beam House
22 Upper Ground
LONDON
SE1 9PJ