The VAT Guide Sections 1-8

Foreword

This notice cancels and replaces Notice 700 (March 2000). Details of any changes to the previous version can be found in paragraph 1.2 of this notice.

Further help and advice

If you need general advice or more copies of Customs and Excise notices, please ring the National Advice Service on 0845 010 9000. You can call between 8.00 am and 8.00 pm, Monday to Friday.

If you have hearing difficulties, please ring the Textphone service on 0845 000 0200.

If you would like to speak to someone in Welsh, please ring 0845 010 0300, between 8.00 am and 6.00 pm, Monday to Friday.

All calls are charged at the local rate within the UK. Charges may differ for mobile phones.

Other notices on this or related subjects

Notice 700 is the main reference guide to VAT. It includes frequent references to more specialised publications. See Section 1 of the notice for more information.

You can find helpful introductory information in:

• Notice 700/15 The Ins and Outs of VAT; and
• Notice 700/21 Keeping records and accounts.

1. Introduction and other sources of information

1.1 What is this notice about?

This notice is the main reference guide to Value Added Tax (VAT).

It provides:

• a guide to all the main VAT rules and procedures;
• help with the problems faced by business; and
• 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 back 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 our other, more specialised publications.

This section of the notice provides information about a range of sources of further information and help, including our National Advice Service.

1.2 Are there any changes from the previous edition?

This notice has been restructured and rewritten to improve readability. The technical content is largely unchanged from the March 2000 edition (which was updated in May 2001).

Significant changes in this edition are:

1.3 Are there other notices which can help me?

1.3.1 Introductory information

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

• Notice 700/15 The Ins and Outs of VAT; and
• Notice 700/21 Keeping records and accounts.

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 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 Notice 727 will help you decide.

1.3.3 Business within the European Community (EC)

If you are involved in either buying or selling goods within the EC you should read Notice 725 The Single Market.

1.4 How can I 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.

There is a full list of VAT publications in Notice 999 Catalogue of publications which is usually revised in January and July each year. There is also a list of public notices available on our website. The address is www.hmce.gov.uk.

You can get all publications listed, free of charge, from our National Advice Service (NAS).

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 can’t find the answer to your query in these publications, you can contact our National Advice Service for help.

1.5 The National Advice Service

Our National Advice Service deals with all general telephone enquiries from both businesses and the public.

1.5.1 Contact details

1.5.2 What the National Advice Service deals with

The service is for all general enquiries about our 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:

• our rules and procedures;
• rates of duty or tax chargeable on particular goods;
• requests for publications, such as forms or notices; and
• requests for duplicate VAT returns.

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

1.5.3 What the National Advice Service does not deal with

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

For example:-

1.6 How can I get advice on VAT matters?

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

For information on when HMRC will provide clearances and other ways in which we provide information please see the guidance.

If you wish to write, you can find a list of written enquiry teams on our website or you should find the address in your local phone book under “Customs and Excise”. If you have any problems, please contact our National Advice Service.

If you wish to contact us by e-mail, you can find our regional addresses on our website.

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 The “Learn about VAT menu”

Shortly after registering for VAT, businesses will be offered the opportunity to find out more about VAT by selecting their option(s) from a menu that will include a free:

• one-to-one consultation with one of our VAT advisors;
• introductory video; and
• seminar with question and answer session.

We are committed to providing newly registered businesses with the option(s) of their choice within three months of receiving their request(s).

1.8 Other learning opportunities

Our VAT staff provide talks and presentations to businesses (new or established) through other organisations such as Chambers of Commerce, Business Link offices and Training and Enterprise Councils (TECs). Many VAT offices also hold open days or evenings for the benefit of local businesses.

1.9 Updates

From time to time, the VAT rules change or we decide to make clearer the guidance given on a particular point. We do this by issuing a revised edition of the publication or by issuing an update for the existing notice. All revised editions and updates are listed on the recent editions page of our website and in the next available editions of VAT Notes, and Notice 999 Catalogue of publications.

We try to keep the number of revisions and updates to the minimum but 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 is this section about?

This section explains:

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

Other administrative aspects are dealt with elsewhere in the notice:

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 ensure that the correct tax is accounted for at the right time. We want you to pay no more and no less than is due.

2.2.1 When will you visit me?

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 ensure that your declarations are correct from the outset.

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

2.2.2 How long will a visit last?

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 our 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; and
• 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; and
• 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; and
• inform you of how you may seek reconsideration of, or appeal against the decision should you disagree.

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

• advising us early of the reasons for any significant changes in the tax or duties declared by you. You should do this by writing to your VAT office;
• keeping your records and payments up to date;
• providing us with the information and explanations we request;
• asking us if you are unsure of any matter connected with the tax. We 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. It is therefore in your interests to ask if you are unsure;
• helping us to understand your business and records;
• replying to enquiries within the specified time; and
• quoting your VAT number when you contact us.

You will find out more about visits from Customs and Excise in Notice 989 Visits by Customs and Excise officers, available from our National Advice Service.

2.3 Tax avoidance

Tax avoidance is not illegal. However, it can give a business an unfair tax advantage over others, and puts at risk tax simplification measures. We have 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 European Community is governed by various Directives, notably the Sixth VAT Directive (1977).

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 Customs and Excise. 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 Customs and Excise interpret 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 Customs and Excise 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 Misunderstanding and misdirection

2.5.1 Misunderstanding

In certain circumstances, we may exceptionally take no further action about VAT undercharged by a taxable person as a result of a genuine misunderstanding which does not concern anything clearly covered in our published guidance, or in specific instructions given to that taxable person.

2.5.2 Misdirection

If a Customs and Excise officer, with the full facts before him or her, has given a clear and unequivocal ruling on VAT in writing or, knowing the full facts, has misled a taxable person to that person’s detriment, any assessment of VAT due will be based on the correct ruling from the date the error was brought to the taxable person’s attention.

Both these concessions can only be applied with our prior agreement. If you think that either of them applies to you, you should contact your local VAT Business Centre.

You can find further information in Notice 48 Extra-statutory concessions.

2.6 Extra-statutory concessions

In certain circumstances where remission or repayment of VAT is not provided for by law, we 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 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 our part you:

• have paid too much VAT;
• have underclaimed VAT; or
• 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 your local VAT Business Centre, who will consider each case on its merits.

2.8 What are my rights as a taxpayer?

As a taxpayer, you have important rights and entitlements. These are laid down in Notice 400 HM Customs and Excise Charter.

It includes standards of service which specifically relate to our administration of:

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

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

You can get copies of Notice 400 from our National Advice Service.

Under the Open Government Code of Practice on Access to Government Information you are entitled to see certain information held by Customs and Excise. See Notice 950 for further details.

2.9 Complaints

Although our aim is always to provide a high standard of service, sometimes things may go wrong. If they do, we have internal procedures for handling complaints fairly and speedily.

Whenever possible, you should try to resolve your complaint on the spot with our officer, but if you are unable to do so you should contact one of our Regional Complaints Units.

If you are not satisfied with the decision, you can ask the Adjudicator to look into your case. The Adjudicator’s service is free.

The Adjudicator is a fair and unbiased referee whose recommendations are independent. The address is:

The Adjudicator’s Office
Haymarket House
28 Haymarket
London
SW1Y 4SP

Tel: 020 7930 2292 (typetalk facilities are available)
Fax: 020 7930 2298

E-mail: Adjudicators@gtnet.gov.uk

Or visit the website at www.adjudicatorsoffice.gov.uk

Our complaints procedures are more fully explained in our code of practice Complaints and putting things right (Notice 1000). The Adjudicator’s Office also produces its own notice How to complain about Customs and Excise. Both notices are available from our National Advice Service.

3. General explanation of VAT: introduction and liability

3.1 Introduction to VAT

The next four sections explain the basic principles of VAT.

You will also find it helpful to read Notice 700/15 The Ins and Outs of VAT, which provides a brief guide to input tax and output tax for VAT-registered businesses.

3.2 What is VAT about?

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 United Kingdom (UK) or the Isle of Man;
• by a taxable person;
• in the course or furtherance of business; and
• 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 etc 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 EC 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); or
• not made in the course or furtherance of business.

3.3 How many rates of VAT are there?

There are three rates of VAT:

• a standard rate, currently 17.5%;
• a reduced rate, currently 5%; and
• a zero rate.

3.4 What supplies are reduced-rated?

Supplies of these goods and services are currently charged at the reduced rate:

• domestic fuel or power;
• installation of energy saving materials;
• grant funded installation of heating equipment or security goods or connection of gas supply;
• renovation and alteration of dwellings;
• residential conversions;
• women’s sanitary products; and
• children’s car seats.

3.5 Is VAT payable on 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).

3.6 Is VAT payable on 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. If you elect to waive the exemption – more commonly known as opting to tax - all supplies you make of a property will, in most cases, be taxable (see paragraph 29.2.8(b) and Notice 742A Opting to tax land and buildings).

3.7 Where can I find further information on liability and rates of tax?

Section 29 tells you about the areas of business where some supplies may be exempt 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 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 does VAT work?

If you make standard-rated supplies, you have to account to Customs and Excise 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 Customs and Excise 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 do I account for VAT on my supplies?

At predetermined intervals you pay to Customs and Excise 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 from us.

4.3 Can I claim VAT relief if my customer has not paid me?

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 Notice 700/18 Relief from VAT on Bad Debts.

4.4 When will I be making a supply of goods?

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

You also supply goods if you:

• transfer them under an agreement such as a hire-purchase agreement - but not if you transfer such an agreement;
• provide water or any form of power, heat, refrigeration or ventilation; but not if you hire out equipment which does this - that is a supply of services (see Notice 701/19 Fuel and power and Notice 701/16 Water and sewerage services);
• supply a major interest in land; broadly speaking, the freehold, or in Scotland the dominium utile, or a lease exceeding 21 years (see Notice 742 Land and property and Notice 708 Buildings and construction); or
• transfer goods permanently out of the business for your private use.

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 When will I be making a supply 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; or
• agree to grant, assign or surrender a right for a consideration.

If you supply services, you should read Notice 741 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) but
• 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 What does “business” mean?

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; and
• admission to premises for a charge.

It may also include:

• the activities of clubs and other recreational bodies; and
• 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); and
• 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, you can telephone our National Advice Service or write to your nearest enquiries office.

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

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, Section 33 (see Notice 749 Local authorities and similar bodies).

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

4.7 The United Kingdom, Isle of Man and the Channel Islands

4.7.1 United Kingdom

The United Kingdom 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

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, you can get further advice by calling our National Advice Service, or writing to your nearest enquiries office.

4.8.3 Services

You supply services in the place where you belong (this is known as the basic rule) unless they are of a type for which there are special place of supply rules.

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.

Special place of supply rules include the following:

• services relating to land and property;
• services involving physical performance;
• passenger transport;
• freight transport including intra-EC transport and related ancillary services and the services of intermediaries arranging those supplies;
• the hiring of means of transport;
• goods on hire;
• telecommunications services;
• certain intermediary services; and
• services supplied where received - mainly “intellectual” in character - (listed in the VAT Act 1994, Schedule 5, paragraphs 1 to 8 - see Section 31 of this notice).

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

You will find more information about this subject in Notice 741 Place of supply of services.

5. General explanation of VAT: imports, exports, acquisitions and intra-EC 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 EC, 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 EC, you should read Notice 702 Imports and 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 the following Notices:

5.4 Services received from outside the UK

If you receive from outside the UK for business purposes, any of the services listed in Section 31, the services are treated as if you supply them, and you must account for output tax on them.

If you have read Section 31 and you think that you might receive services of this kind from outside the UK, please read Notice 741 Place of supply of services.

If you receive from outside the UK any of the services listed in Section 31, their value counts towards your taxable turnover. This applies even if the only supplies you make in the UK are exempt.

If you are registered for VAT in the UK…

If you are a non-UK supplier of these services and your customer does not supply a UK VAT registration number, please see Notice 741.

5.5 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.

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 Notice 702/9 Warehousing and free zones.

5.6 Exported goods

If you export goods to a customer outside the EC, 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 Notice 703 Exports and removals of goods from the United Kingdom.

5.7 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.

5.8 Intra-EC supplies of goods

If you supply goods to a VAT-registered customer in another EC Member State and the goods are removed from the UK to another EC 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 Notice 725 The Single Market.

5.8.1 EC Sales List

Since 1 January 1993, UK traders registered for VAT who make supplies of goods to traders registered for VAT in the other Member States have been required to send in lists of their EC supplies. The EC Sales Lists are used to control the taxation on movements of goods within the EC.

You will find more details about EC Sales Lists in Notice 725 The Single Market.

5.8.2 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 The Intrastat General Guide.

5.8.3 Acquisitions

6. General explanation of VAT: registering for VAT

6.1 Requirement to be registered

6.1.1 Taxable supplies

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

6.1.2 When must I register and start to charge VAT?

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 Notice 700/1 Should I be registered for VAT?

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 Notice 700/1 Should I be registered for VAT? Notice 700/1 also explains how to apply for:

• exemption from registration if your taxable supplies are wholly or mainly zero-rated; and
• 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 Notice 749 Local authorities and similar bodies.

6.1.3 When do I notify you?

You must notify our National 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.

You can find details of our National Registration Service offices:

• in the supplement to Notice 700/1;
• on our website, under VAT; or
• by calling our National Advice Service on 0845 010 9000.

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; or
• a charity.

6.2 Are there other situations where I 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

If you are not already registered for VAT...

6.2.2 Distance sales

Distance selling is when a taxable person in one European Community (EC) Member State supplies and delivers goods to a customer in another EC Member State and the customer is not:

• registered for VAT, or
• liable to be registered for VAT.

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

If you are a supplier in another EC member state and not already registered for VAT in the UK

You can find further information about registration in respect of acquisitions or distance sales in the UK in Notice 700/1 Should I be registered for VAT? Notice 700/1 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 Relevant supplies by Non Established Taxable Persons (NETPs) and unregistered UK businesses

(a) What is an NETP?

An NETP is any person who is not normally resident in the UK, and does not have a business establishment here and, in the case of a company, is not incorporated here. NETPs who make:

• taxable supplies;
• distance sales; or
• 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.

Notice 723 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 arrangements at (b) above, 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 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 What should I do if I am VAT registered and make some exempt supplies?

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

6.5 What if I have separated my business into smaller parts?

Where a business has been artificially separated into smaller parts and this results in the avoidance of VAT, we have power to direct that the persons running these activities be treated as a single taxable person and registered. For further information see Notice 700/1 Should I be registered for VAT?

You have the right to appeal to an independent VAT and Duties Tribunal against the issue of such a direction (see Section 28).

6.6 When is it possible to register as a VAT group or have 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 Notice 700/2 Group and Divisional Registrations.

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

6.8 How do I register if I am part of 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 etc is above the relevant thresholds.

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

7. Output tax: introduction and tax value

7.1 What is 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 three sections:

You will also find it helpful to read Notice 700/15 The Ins and Outs of VAT.

7.2 What is 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 What if the consideration is 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:

However, £0.35 is not 17.5% of £2.35. It is 7/47 of £2.35.

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

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

7.3.2 Discounts

The following rules apply if you offer discounts to your customers.

(a) Unconditional discounts

(b) Discounts for prompt payment

(c) Contingent discounts

7.4 What if the consideration is 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 the paragraphs of these sections on output tax that deal with particular types of transaction. See also:

• Notice 725 The Single Market for the tax value of intra-Community acquisition of goods; and
• Notice 702 Imports for the tax value of imported goods.

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.

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; or

(b) As an alternative, you may use the period rate of exchange published by Customs and Excise for customs purposes. Our National Advice Service 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 us in advance if you wish to adopt this alternative, but having made such an option, you cannot then change it without first getting the agreement of the VAT Business Centre for your area; or

(c) You may apply in writing to the VAT Business Centre for your area 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) above.

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; and
• 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, see 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

8.1.1 Apportionment

There is no special method of apportionment, unless you are using the tour operators’ margin scheme, when you must use the method set out in Notice 709/5. 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 is apportionment 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 our National Advice Service 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

8.3 Delivery charges (postage and packing etc)

When you supply goods,

Your supply of delivery services is standard-rated if the goods are sent to an address in the UK and zero-rated if they are sent elsewhere.

However,

You will find more about all of this in Notice 700/24 Postage and delivery charges.

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 Notice 701/49 Finance and Securities.

8.4.2 Supplies involving a finance company

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 Notice 718 Margin Schemes for second-hand goods, works of art, antiques and collectors’ items.

8.6 Exchange units

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

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; and
• supply to any person only one example of each product that is identical or not different in any material respect. If you supply more than one identical (or not materially different) sample, all but one is a supply for VAT purposes; but see 8.8.2.

8.8.2 Samples given for testing

You may exceed the limit of only one example of each product being given to any person (see 8.8.1) if you can show that the items given are for quality assurance testing, either on your own behalf, or by a potential customer. You must meet all other conditions.

8.8.3 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 final customer receives only one example of each product;
• the samples remain your property until they are given to the final customer; and
• 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 8.9.3 below).

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; or
• 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 Notice 700/7 Business promotion schemes for the special rules for this kind of supply.

8.9.3 Gifts on which VAT is not due

VAT is not due on some types of gift. You do not make a supply when you make a gift of:

• goods which cost you £50 or less - excluding VAT. The goods must be given for business reasons and not be part of a series or succession of gifts to the same person; or
• 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; or
• 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.

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 telephone 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 Notice 700/7 Business Promotion Schemes.

8.13 Cancellation charges, forfeited deposits and booking fees

8.13.1 Charges, deposits and fees

8.13.2 Guarantees or insurance

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. You should contact our National Advice Service for advice.

Do you have any comments?

We would be pleased to receive any comments or suggestions you may have about this notice. Please write to:

HM Customs and Excise
Business Services and Taxes
Customer Focus Team
New King’s Beam House
22 Upper Ground
LONDON
SE1 9PJ

If you have a complaint or suggestion

If you have a complaint please try to resolve it on the spot with our officer. If you are unable to do so, or have a suggestion about how we can improve our service, you should contact one of our Regional Complaints Units. You will find the telephone number under ‘Customs and Excise - complaints and suggestions’ in your local telephone book. Ask for a copy of our code of practice ‘Complaints and putting things right’ (Notice 1000). You will find further information on our website at http://www.hmce.gov.uk.

If we are unable to resolve your complaint to your satisfaction you can ask the Adjudicator to look into it. The Adjudicator, whose services are free, is a fair and unbiased referee whose recommendations are independent of Customs and Excise.

You can contact the Adjudicator at:

The Adjudicator's Office
Haymarket House
28 Haymarket
LONDON
SW1Y 4SP

Phone: (020) 7930 2292
Fax: (020) 7930 2298
E-mail: adjudicators@gtnet.gov.uk
Internet: http://www.adjudicatorsoffice.gov.uk/

Update 2 issued February 2004

This leaflet amends certain paragraphs in Notice 700 April 2002 edition with new or revised information on a number of VAT questions including updates resulting from implementation of EC VAT Invoicing Directive.

It also updates the information given in Amendment 1 (May 2002) to the April 2002 edition regarding VAT on road tolls.

2 Administration of VAT

2.3 Tax avoidance

Delete first two sentences from “Tax avoidance is ------” up to “----------- tax simplification measures” and replace with “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.”

8 Output tax: particular situations

8.3 Delivery charges (postage and packing etc)

Paragraph 2, after the second boxed text. Delete “Your supply of delivery services is standard-rated if the goods are sent to an address in the UK and zero-rated if they are sent elsewhere" and replace with "If you supply delivery services see Notice 744B Freight transport and associated services."

8.9.3 Gifts on which VAT is not due

Delete paragraph 1 and the two bullet points following it from “VAT is not due on ----” up to “ a -------- your employees.” and replace with:

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.

9 Output tax: business and non-business use

9.2 Use of goods or services in your business

Paragraph 2. Delete first bullet point “are partly exempt (see paragraph 13.1) and ------------------- produced (see Notice 706/1 Self-supply of stationary);”

10 Input tax: introduction and general rules

Insert new Section 10.6A as follows:

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 six months of:

(a) the date of supply (usually taken as the invoice date), or if later

(b) the due date for payment.

Notice 700/18 Relief from VAT on Bad Debts contains more detailed information on this.

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

After Chapter 12 and its sections, insert new Chapter 12A as follows:

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. Customs will accept this is the case where a business has imposed clear rules prohibiting private use and enforces them. However we realise that in practice businesses with such a policy often tolerate a small amount of private calls. We are 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.

16 VAT invoices: general rules

Delete the whole Section 16.2.2 “Exceptions” and replace with:

16.2.2 Exceptions

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

• your customer operates self-billing arrangements (see Notice 700/62 Self-Billing) or you issue authenticated receipts (see paragraph 17.4); or
• you make a gift of goods on which VAT is due (see Notice 700/7 Business promotion schemes).

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 Notice 718 Margin Schemes for second-hand goods, works of art, antiques and collectors’ items; or supplies that fall within the tour operators’ margin scheme.

Insert new Section 16.2.4 as follows:

16.2.4 Must my invoice 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.

16.3.1 General

Paragraph 1. After “VAT invoices must show:” delete sixth bullet point.

Also delete seventh bullet point and replace with:

• a description which identifies the goods or services supplied; and
• the unit price (see paragraph 16.3.2).

Paragraph 2. Insert ‘the’ after “For each description, you must show:” (i.e. before the colon). Delete ‘the’ at the start of each bullet point.

Insert ‘and’ after fifth bullet point. Delete sixth bullet point.

Delete the whole Section 16.3.2 “Type of supply” and replace with:

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; and
• is not required by the customer.

Insert new Section 16.3.3 as follows:

16.3.3 Example of a VAT Invoice

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

Delete the whole Section 16.4 “Invoicing in a foreign currency” and replace with:

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.

16.6.1 Less detailed VAT invoice

Delete both instances of ‘£100’ in the boxed text (i.e. “is £100 or less” and “exceeds £100 and ------ invoice”) and replace with ‘£250’.

Second row on the “Then you ----” side of the table. Delete ‘shown in sterling’ at the end of fourth bullet point.

16.6.2 Modified VAT invoice

Paragraph 2, second bullet point. After ‘VAT payable on those supplies’ insert ‘shown in sterling;’

17 VAT invoices: particular situations and rules

VAT invoices for petrol and diesel oil (derv)

17.1 Delete both instances of ‘£100’ in boxed text (i.e. “£100 or less” and “more than £100”) and replace with ‘£250’.

17.4.1 Self-billing

Delete paragraph 2 including bullet points from “If you want a self -------------” up to “will not ------- transactions”. Replace with:

“If you want to use a self-billing system for supplies made to you, you must meet the conditions set out in Notice 700/62 Self-Billing.”

17.7 Computer invoicing

Delete paragraphs 3 “Before you do so -------” and 4 “Although you must -----“ and replace with:

“Before you do so, you will have to comply with certain conditions as set out in 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 our National Advice Service as soon as you decide to use computer invoicing.”

17.8.2 Transmission by e-mail

Delete the whole Section 17.8.2 “Transmission by email”

Insert new Section 17.9:

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 Notice 700/63 Electronic Invoicing.

18 Credits and debts

18.2.2 Valid credit or debit notes

Insert new sentence at end of last paragraph as follows:

“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 Accounting for credit or debit notes you issue or receive

Paragraph 1. Delete “If you have to make an adjustment, you must adjust:” and replace with: “When you issue a credit note or receive a debit note, you must adjust:”

Paragraph 4. Delete last sentence “You must make it clear that it is a minus figure by writing it in brackets.” and replace with,

“You must make it clear that it is a minus figure by:

• writing it in brackets if you use a paper return; or
• inserting a minus sign ‘-’ before the figure if you use an electronic return. (See also paragraph 20.4.2)”

18.2.7 Self-billed debit notes

Delete the whole Section 18.2.7 “Self-billed debit notes.”

18.5 Can I claim relief from VAT on bad debts?

Paragraph 2. Bullet point 3. After “sent a notification to the purchaser” insert in brackets (this condition does not apply to supplies made on or after 1 January 2003).”

19 Records and accounts

Insert new Section 19.3A as follows:

19.3A Flat rate scheme

19.3A.1 What is the flat rate scheme?

The Flat Rate Scheme (FRS) offers small businesses an alternative to the normal transaction based method of VAT accounting. The aim is for small businesses to spend less time and money keeping VAT records and calculating the VAT payable to Customs.

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 us. 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 us. Input tax is not normally claimed by businesses on the scheme, it is taken into account when the flat rates are calculated.

19.3A.2 Who can join the scheme?

The scheme is open to small businesses whose VAT exclusive annual taxable turnover does not exceed £150,000 and whose total VAT exclusive turnover (including the value of exempt and non-taxable income) does not exceed £187,500 a year.

19.3A.3 How is the flat rate calculated?

We calculate the flat rate percentage from the net tax paid by businesses. This is different for different trade sectors and so the flat rates vary. You can find further details about the flat rate scheme, including the table of flat rates and an application form, in Notice 733. There are special rates for businesses using FRS during their first year of VAT registration. They use a rate which is 1% below the usual rate because they generally claim back more VAT than businesses who have been registered longer for VAT.

19.3A.4 Advantages and disadvantages

Advantages:

• no need to separate out gross, VAT and net in your accounts;
• no more problems about what ‘input tax’ you can and cannot reclaim;
• 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; and
• 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 the business loses some cash flow in VAT on stock waiting to be sold;
• 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; and
• the scheme cannot be used in conjunction with the tour operator’s margin scheme or the margin schemes for second-hand goods, works of art, antiques and collectors’ items.

You can find further details about the flat rate scheme including the table of flat rates and an application form in Notice 733.

19.5.1 General

Paragraph 3. Section (d), bullet point 1. After “goods you import by post – other ------------- of £2000 or less” insert in brackets “(see also paragraph 19.8.1 (b))” before ‘;and’.

19.6 Record of credits allowed to customers

Delete last two paragraphs after boxed text including the bullet points from, ‘When you make a tax…’ onwards. Replace with, “See also paragraph 18.2.4 for information on how to account for credit or debit notes you issue or receive.”

19.7.5 Other circumstances

Update to Amendment 1 (May 2003) of Notice 700. Under “This excludes tolls charged by the:” Insert “Clifton Suspension Bridge" after “Cleddau Bridge”.

19.8.1 General

Paragraph 3. Section (b), bullet point 1. After “goods imported by post - other ------------- of £2000 or less” insert in brackets “(see also paragraph 19.5.1 (d))” before ‘; or’.

19.14 Example of a VAT account

Example of a VAT account. Title of the example. Delete “1 January 2001 to 30 March 2001” and replace with “1 January 2003 to 31 March 2003”.

On the VAT payable – Output tax side of the table. Lines 9 and 10. Delete “Annual adjustment: Retail Scheme D” and replace with “Annual adjustment: Retail Scheme - Apportionment Scheme 1”.

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

Delete the whole Section 20.6 “Annual accounting scheme” and replace with:

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 four. You will have to make interim payments by electronic means based on your actual or estimated annual VAT liability.

The scheme is open to small businesses who:

• have been VAT registered for less than 1 year and don’t expect the VAT exclusive turnover in the next year to be more than £150,000; or
• have been VAT registered for more than one year and don’t expect the VAT exclusive turnover in the next year to be more than £600,000.

20.6.2 Interim payments

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.

Payments start at the end of month 4 of your annual accounting year and the ninth payment is paid at the end of month 12. You then have 2 months to send in your return and balancing payment. We then calculate payments for the next year, which will start again at the end of month 4.

20.6.3 Advantages of the scheme

The advantages of the scheme are:

• an eligible business can choose an annual accounting year that best suits its business needs;
• your annual VAT return and balancing payment will be due 2 months after the end of the annual accounting period;
• you will be able to manage your cash flow with more certainty by paying a set amount each month;
• we will notify you how and when to make your payments;
• you can choose which electronic method to make your interim payments by - BACS, CHAPS, bank giro, direct debit or standing order.

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 and write them all up at the end of the year.

Further details about the scheme, including the application form for joining, are in Notice 732.

26 Changes in circumstances

26.1 Introduction to changes in circumstances

Delete paragraph 4 “If you wish --------- listed in paragraphs 26.2 and 26.3.”

26.3 What changes require amendment of registration?

Paragraph 2, after the second bullet point “giving the date -------- took place. Insert a new paragraph as follows “You may render yourself liable to civil penalty if you fail to notify any of the above changes within the prescribed time limit. See Notice 700/1 Should I be registered for VAT? for further details.

26.14 Example of Form VAT 902

Delete the whole Section 26.14 “Example of Form VAT 902”.

35 Index

Index F

Insert “Flat rate scheme” after ”Fishing rights”. Same subject, on the ‘References in this notice’ side of the table, insert 19.3A. Same subject, on the ‘References in other publications’ side of the table, insert 733.

Index H

Subject: ‘Handicapped people’. Delete “ - see Disabled”. Same subject, on the ‘References in other publications’ side of the table, insert ‘371, 701/6, 701/7, and 744A’.

Index I

Index I. Subject: ‘Input tax’. Insert “- mobile phones provided to employees” after “- goods dwellings and residential buildings”. Same subject, on the ‘References in this notice’ side of the table, insert ‘12A’.

Index M

Insert “Mobile phones provided to employees” after “Mobile homes – see Caravans”. Same subject, on the ‘References in this notice’ side of the table, insert ‘12A’.

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