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Company Formation Home Page >> UK Tax Planning >> UK: Value Added Tax | 
| General Advantages Of Limited Liability Companies:
1. Liability is, in the vast majority of cases, strictly limited to the investments made by the shareholders.
2. Company Officers are not personally liable for their actions unless, in most instances, there is a clear and serious breach of their fiduciary duty.
3. Ironically, despite the limited liability, such entities often benefit from 'greater prestige' than their sole proprietorship or partnership counterparts. The reason is probably because such an enterprise normally requires more planning and thus is deemed more credible.
4. They often benefit from significant tax advantages. In fact, many countries around the world give exclusive tax incentives to this type of entity.
5. The rights of shareholders are normally clearly defined and protected. Promotes good record keeping.
6. Corporate taxes only become payable after the end of the financial year. This means that money that would otherwise be taxed on a monthly or quarterly basis is available to earn further money before the final payment of tax.
7. You must appoint a minimum of 1 Director.
8. Directors can be corporate bodies or private individuals.
9. A Director can be of any nationality.
10. All companies must appoint a company Secretary. A Secretary can be of any nationality.
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UK VALUE ADDED TX Welcome to Coddan online UK company registration agent website. We offer electronic British company registration and electronic filing of documents. Your English and Scottish company is registered electronically as soon as we receive your details (and payment) it could not be done any more easily or quickly. We review your choice of company name etc and Companies House make a number of checks (to verify the registered address details etc) and your company is registered as soon as this process is complete. It can take three hours, it may take twenty-three hours, it all depends on how busy Companies House staff and systems are. We send your package to you by first class recorded delivery, as part of the service. We also offer Nominee Company Secretary and Registered Office facilities in addition to UK company registrations. We will register your new company in the United Kingdom with your intended directors, company secretary, registered office and shareholders all in place and recorded at Companies House at the time of registration, although we can of course still use our nominees for incorporation purposes if you prefer. We complete all the minutes, statutory registers and official documents on your behalf, and ensure that all necessary forms and resolutions are correctly filed with the Registrar of Companies. If you want to become familiar with the description and the contents of online English, Scottish and Irish companies registration packages, offered by Coddan and to find above, what kind of service is included in this or that UK companies registration package, to get an idea about the price of annual fees, please, select the package you need from the list, situated below the banner. The information in the banner will be renewed according to the package you've chosen. All of our Memorandum and Articles of Associations and Partnership Agreements were reviewed and approved by a volunteer U.K. lawyer. Our products start from just £42.00 for our E-Quick service. This package offers fast electronic company registration documents and like all of our formation products is usually completed with in three hours.
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IMPORTANT NOTE Our corporate, tax and securities lawyers have extensive experience in the issues involved in all type of business entities, including corporations, private limited companies, public companies, limited liability companies, limited partnerships, general partnerships, limited liability partnerships and professional associations. Our lawyers advise clients in the choice of entity to utilize for any given business venture. Such advice includes the tax advantages of the respective entities as well as the non-tax or business issues involved in each type of entity.
Our lawyers continue their representation of such entities on an ongoing basis and advise the entity and its owners regarding the business issues which arise from time to time (such as labor and employment issues, tax issues, negotiating contracts, securities issues and licensing and regulatory matters).
Our lawyers also represent many entities which are involved in negotiating mergers with other entities or acquisitions of other entities. This representation includes advising the business and the owners on the purchase or sale of a business and on tax-free mergers or other reorganizations of business entities, as well as structuring divisions of an existing entity into two or more new entities.
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Our attorneys monitor the latest developments in both tax and non-tax laws affecting estates and trusts and lecture extensively on those subjects around the country to numerous professional groups and organizations. The firm's Trust and Estate attorneys are proficient in analyzing and implementing the latest techniques to reduce estate and gift taxes, including, for example, family limited partnerships, GRATS and charitable remainder and lead trusts. The firm's Trusts and Estates attorneys also advise our clients on the income, gift and estate tax consequences of charitable gifts; handle the negotiation and preparation of marital agreements; provide asset protection planning for individuals; and have extensive experience in the establishment of private and publicly supported charitable organizations, international estate planning and estate and trust litigation, as well as post-mortem tax planning.
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VAT REGISTRATION Value Added Tax (VAT) is a tax businesses charge when they supply their goods and services in the United Kingdom (UK) or Isle of Man (IOM). It is also charged on goods, and some services, that are imported from places outside the European Community (EC) and on goods and services coming into the UK from another EC Member State.
New businesses are often advised to register for VAT immediately if it is clear at the outset that expected turnover is likely to exceed the annual threshold which is currently £55,000. However, for some businesses - for example those in the service industries who deal directly with the public - there can be savings from deferring registration and these can amount to nearly £26,000.
The total value of any saving will depend upon the amount of input tax that cannot be claimed as a result of delaying registration. Benefits are more likely for those businesses with low inputs such as restaurants (standard rated outputs but mainly zero rated inputs), those serving consumers directly such as hairdressers, and people who provide some exempt supplies - consultants to some financial sector businesses could come into this category.
The limit for Value Added Tax registration is continually being raised. From April 25th 2002, you have to register for VAT IF your annual taxable turnover exceeds £55,000 or if the value of taxable supplies is likely to exceed that sum in the next 30 days. Although that may sound like a lot, for a very seasonal business, which makes most of its profit at Christmas, for example, it is easy to breach the limit very quickly. And since Value Added Tax registration reflects turnover not profit, a small builder who makes a relatively small profit but deals with expensive materials may have to register.
For those who grumble about being an unpaid tax collector for the Government, there are compensations. Being registered for VAT can actually save you money and some opt for voluntary VAT registration before they reach the limit. And changes to the law April 25th 2002 mean that Value Added Tax returns are becoming simpler.
THE VALUE ADDED TAX SYSTEM Value Added Tax, or VAT, is a tax most suppliers of goods and services charge by adding it to those goods and services. Business supplies include selling goods, renting and hiring goods, business stock used for private reasons, services including hairdressing, charging an admission price for buildings, and providing supplies as a self-employed person.
VAT rates vary according to the goods and services supplied. There are four categories:
Exempt Supplies: Including education, finance, insurance, and the services of doctors and dentists (but not some other services, such as osteopaths). There is no Value Added Tax charged on exempt supplies. If you only supply exempt services, you cannot usually register for VAT. However if you are Value Added Tax registered and have some exempt supplies, you may have difficulty claiming back all your input tax.
Zero Rate: Charged on most food (but not restaurant or takeaway meals), children's shoes and clothing, prescriptions, books and newspapers, new house sales and prescriptions. If the only goods you supply are zero-rated, you may not have to register to VAT – but you do have to apply for exemption from registration.
Reduced Rate: A rate of 5% that includes fuel and power used in homes and by charities.
Standard Rate: Now 17.5%, and applied to all goods and services which do not fall into the other three categories.
Once your turnover reaches the threshold (£55,000 at April 25th 2002) - or will within 30 days - you must register for Value Added Tax. To work out whether you have to register, you can ignore the value of any capital assets - buildings, vehicles or equipment - you have sold and any exempt supplies. Putting off registration can be expensive as you may have to pay Customs and Excise the tax that you should have collected plus a fine as well. There are severe penalties for late registration and for VAT evasion.
Most businesses collect more VAT from their customers than they pay to their suppliers. They then fill in a quarterly Value Added Tax return, and pay the surplus to Customs and Excise. If you need to register, you have to account for VAT whenever you supply goods and services.
For VAT purposes, the tax you charge on those supplies is your output tax. Customers registered for Value Added Tax who are using your supplies for their business then register the tax you charge them as their input tax.
Input tax is the VAT you have paid your suppliers for business purchases and expenses. It includes Value Added Tax on raw materials and things you buy to re-sell, as well as business equipment, business phone calls and payments for professional services, such as accountants' fees. If you regularly pay out more VAT than you collect, you can fill in a return every month and claim a refund from Customs and Excise. However you cannot reclaim input tax on some cars, certain entertainment expenses or if you only supply exempt goods and services.
Remember that it is you, not your business, who is registered for VAT. Registration covers all parts of your business, so you need register only once. If you bought your business as a going concern, you need to look at the taxable turnover to see whether you need to register. Your registration date will be the day you took over the business. If the previous owner was Value Added Tax -registered already, you may be able to retain the existing VAT number.
To register for Value Added Tax, you need to contact your local Customs and Excise office - which you can find in your local phone book - and complete Form VAT 1. If you are in a partnership, you need to fill in VAT 2 as well.
VALUE ADDED TAX EXEMPT SUPPLIES Certain supplies are exempt from Value Added Tax. Output VAT is not charged on such supplies and, in principle, input Value Added Tax attributable to such supplies cannot be reclaimed (or the claim is restricted).
Relatively small businesses may be able to reclaim all their input VAT - even for their exempt supplies. The input Value Added Tax attributable to their exempt supplies must not exceed £7,500 a year and must be no more than half the VAT on all their purchases.
Value added tax-exempt supplies:
Exempt supplies include: insurance, finance, health, education, and burial and cremation services. Sales of new buildings are standard-rated unless used for residential or charitable purposes. In general, leases and sales of non-domestic land and buildings, other than newly built ones, are exempt, unless the option to tax has been exercised.
A taxable person may choose to charge output VAT on supplies of existing buildings and land (including rents) which are not used for residential or charitable purposes.
VALUE ADDED TAX ZERO-RATED SUPPLIES If a business makes zero-rated supplies, it does not charge VAT on supplies but can reclaim input VAT.
Zero-rated supplies include:
Most food and some drinks - but not catering, restaurant meals or hot take-away food. Domestic supplies of water and sewerage. Books and most other publications. Sales of new residential buildings and buildings for use by charities. Supplies of services by contractors when constructing new residential buildings or buildings for charities. Alterations to some buildings where listed building consent is needed. Public transport of passengers. Drugs, medicines and aids for the disabled. Clothing and footwear for children. Exports of goods and certain services to non-EU countries.
 EU Single Market
Where sales are made to businesses that are registered in other EU countries, the supplier need not charge VAT:
The customer's VAT number must be shown on the sales invoice. The customer is then responsible for accounting for output VAT on the goods on its own VAT return, but may claim input VAT if the goods are for use in making taxable supplies. However, output VAT must be charged on sales to private individuals in other EU states.
COLLECTION OF VAT AND PENALTIES Registered traders normally have to submit VAT returns, and pay any VAT due, every three months. Collection of vat and penalties:
Traders who regularly reclaim VAT from Customs and Excise may apply to submit monthly returns. Some large companies have to pay monthly. Tax on imports from outside the EU has to be paid at the time of importation, unless special arrangements are set up. Traders with a turnover of £600,000 a year or less can complete annual returns only, making nine monthly VAT payments on account, with a final payment due along with the year-end return. Penalties are charged for late or incorrect VAT returns. A default surcharge of between 2% and 15% of the VAT payable is charged where returns are late. A penalty of 15% is charged for serious or persistent misdeclarations. A penalty of between 5% and 15% is charged where a person is late in registering for VAT. Interest can also be charged on VAT paid late.
CHANGING REGULATIONS Value Added Tax rules are changing, year by year, to make the tortuous business of registering and filling in VAT returns easier. Until March 1990, the limit for VAT registration was just £25,400, and even the smallest of businesses quickly ran into the time-consuming process of filing VAT returns. Now the threshold is much higher (£55,000 at April 25th 2002), putting it beyond the reach of the newest and smallest businesses.
There are now special schemes to make life easier for small and medium sized enterprises (SMEs). The cash accounting scheme lets you account for Value Added Tax on the basis of payments you have made and received, instead of on the basis of invoices issued. This means that you automatically have bad debt relief and it also helps if you allow periods of credit or have late payers. The April 2001 Budget allowed businesses with a turnover over £350,000 to join the cash accounting scheme, up to a limit of £600,000. Businesses already running the scheme will be allowed to continue until their taxable turnover reaches £750,000.
The annual accounting scheme was also extended, with limits doubled so that they now apply to businesses with a turnover of up to £600,000. Annual accounting removes the slog of quarterly tax returns from small businesspeople. Once you have been Value Added Tax registered for a year, you can send in just one annual return and pay monthly by direct debit.
VAT RECORD-KEEPING Rather like keeping records for the Inland Revenue, you need to be meticulous about Value Added Tax record keeping. You need to record all your business transactions, and keep documents including bank statements, bills, receipts and cheque stubs to back them up. You also need to separate your business transactions from your personal finances.
For VAT purposes, you must keep a record of all the supplies you make and receive, and a summary of Value Added Tax for each tax period covered by your tax returns. Records must be up to date and easy to find, and if you register for VAT you must keep your records for six years. Many businesses choose to employ an accountant or at least a book-keeper at this stage, to take the headache out of paperwork and leave them time to get on with running their business, especially since there are severe penalties for failing to keep records.
WHAT IF I OPT TO TAX MY LAND AND BUILDINGS? For certain supplies of land and buildings, which would otherwise be exempt from Value Added Tax, you can choose to "elect to waive" the exemption and thus charge VAT on your supply (this is also known as the "option to tax"). If you do opt to tax, the value of the taxable supplies of the land and buildings covered by the option must be included in your taxable turnover when you are deciding whether you are liable to be registered or whether you wish to be registered on a voluntary basis.
If you are not already liable to be registered for Value Added Tax and you become liable to register, or wish to register voluntarily, following the option to tax, a written notice of your option must be included with your Form VAT1 (Application for Registration). If you have already made an exempt supply of the land or building (sale, leasing or letting) before the date from which you want your option to have effect, you must first get our written permission. However, you do not need to do this if you meet the conditions for automatic permission. If this is the case, when submitting your Form VAT1 please confirm in writing that you fully meet these conditions so that we can deal with your option to tax.
If you do not meet the conditions for automatic permission, we cannot process your application for registration until you get permission from our National Advice Service, unless you are making other taxable supplies and are required to, or wish to, register. Once you have permission to opt to tax, you should enclose a copy of the option to tax correspondence with your Form VAT1.
WHAT IF I ONLY SUPPLY GOODS OR SERVICES ABROAD? If you have a business establishment in the United Kingdom (including a branch or agency) or your usual place of residence is the UK, but you only supply goods or services to customers based outside of the United Kingdom (which would have been taxable if made in the UK), then you are able to register for Value Added Tax on a voluntary basis as long as you receive taxable supplies from United Kingdom Value Added Tax registered businesses or import goods into the UK. If you think you might be able to register, you should phone National Advice Service for further advice.
WHAT IF I TAKE OVER A BUSINESS FROM SOMEONE ELSE? If you take over a VAT registered business from someone else, as a going concern, you are liable to be registered, unless you qualify for exemption from registration. You may be able to transfer the previous VAT registration number to yourself. Your registration date would be the date you take over the business. If the previous owner was not registered for VAT, you must look carefully to see if you need to register.
DO I HAVE TO REGISTER IF I LIVE OR WORK ABROAD? You may still have to register if you live in this country but carry out part of your business abroad or if you have a place of business in this country but live abroad. In these circumstances you have a business establishment in the UK and would be liable to register subject to the normal rules.
WHEN MUST I START KEEPING RECORDS AND CHARGING VAT? You must start keeping records and charging VAT to your customers from the date you know you have to be registered. You can charge VAT before you are registered but until you have a registration number you must not show VAT as a separate item on any invoice you issue. You can change your prices to include VAT and explain to any of your customers who are also registered that you will be sending them VAT invoices later. Once you have your registration number you should send the necessary invoices showing VAT within 30 days.
If you have asked for voluntary registration you should start keeping records and charging VAT from the date you are registered. This will normally be the registration date you asked for on your application form. Please note that, once you are registered, you must account for and charge VAT on all your taxable supplies, distance sales, acquisitions and relevant supplies in the UK, regardless of whether those values are above the threshold, for example if you are registered because your distance sales are above the relevant registration threshold, once registered, you must account for VAT on all your taxable supplies and acquisitions in the UK.
IMPORTATION OF GOODS FROM OUTSIDE THE EUSome transactions made by NETPs involve importing goods into the UK from outside the EC. The place of supply of the imported goods may affect whether you must register for VAT in the UK. The correct place of supply depends on who carries out the importation procedures. If you supply the goods and import them yourself, or they are imported under your direction, the place of supply is deemed to be the UK. If your customer is responsible for the importation, the place of your supply of the goods is deemed to be outside the UK.
TRADING WITH CUSTOMERS IN THE EU - BUT WITH NO OFFICES IN THE EU If you incur VAT on trips to the EU, for example when attending exhibitions or visiting potential customers, it may be possible to recover some or all of this VAT by making a reclaim under the EC 13th Directive. In the UK, claims must be submitted on or before 31 December for each year ending 30th June. If you expect such claims to be made regularly it is usually worthwhile to seek advice on the first claim so that the relevant procedures can be set up in-house. Export of goods to the EU.
Businesses will expect to pay import VAT on your goods and recover it through their VAT returns. Consumers may receive an unpleasant surprise when required to pay import VAT, quite often with a significant administration charge. If you are likely to be selling goods directly to consumers, then planning in advance may allow you to take VAT into account when pricing and reduce the final cost to your customers. Export of Services to EU.
If you supply services to businesses in the EU, they will account for VAT through their own VAT returns. There is no need to register for VAT in the EU. However, if you supply certain types of services (e.g via the internet) to individuals, then you may have to register for VAT somewhere in the EU. Advance planning will help you identify where you are at risk, assist you in distinguishing between business customers and consumers and help you decide whether you need to register for VAT.
OFFICES PLANNED OR ALREADY ESTABLISHED IN THE EU If you intend to establish a business in the EU, you need to take advice on how VAT will affect your business. If you apply the wrong rate of VAT to your sales, or fail to charge VAT when it should have been charged, it is possible that you could suddenly find that your cost of sales has risen substantially. It is thus essential that you take advice on how VAT will apply to your business. Some sales of goods and services are exempt from VAT, but with the result that VAT paid on the costs of the business is not deductible. VAT paid by the business is not recoverable and it becomes an extra business cost. Proper advance planning will allow you to reduce the cost of irrecoverable VAT. If your sales of goods or services will be subject to VAT, then each member state has a threshold, above which you are required to register for VAT. Failure to register on time can result in you having to pay penalties, interest and any VAT which should have been charged from the date when the threshold was exceeded. The UK's threshold is the highest in the EU and one of the lowest standard rates.
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Tax Planning
UK: Value Added Tax
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