‘If it moves, put VAT on it!’ is a
rule of thumb that many have heard, but, of course, it is not always
Whilst it is true that most supplies
of goods or services attract VAT at 17½%, there are a number of key
areas where that is not true. Further, if you, as supplier, apply
VAT incorrectly, then your customer has no right of recovery of that
VAT as input tax.
VAT can apply at the following
rates: 17½%, 5%, 0%, and exempt.
The default position is that the
standard (17½%) rate applies.
VAT Law lays down those supplies
which fall into the other rates. It is as well to identify as early
as possible whether your activities fall within any of those
One High Court Judge commented;
“Value added tax is surely now well enough established in our daily
commerce that anyone, however inexperienced, ought to recognise the
need to become acquainted with its basic requirements when embarking
upon a career.” Although the contact was concerning registration
for VAT, his words can be applied equally to finding out what rate
of VAT applies.
There is a useful leaflet, available
on Revenue & Customs’ website,
number 701/39. The latest edition is August 2004, so it may be
out-of-date in some places. However, it will indicate those areas
which may be applicable to you.
A person is required to issue a VAT
invoice when he makes any ‘taxable supply’ (i.e: at 17½%, or 5%, but
not at 0%) to another taxable person. Where an invoice includes
supplies at, for example 17½% and 0%, then the obligation remains.
This has to be issued within 30 days of the date of the supply,
either the delivery or making available of goods, or the carrying
out of a service.
The invoice has to contain certain
information, and this changed from the start of 2004. In particular,
the invoice has to include sufficient description of the goods or
services supplied, and the unit price(s) of the supplies made.
Fuller information is found in Notice 700, chapters 16 and 17.
The date of the supply is called the
‘basic tax point.’ This is overridden when an invoice is issued if
that is within 14 days of the basic tax point, or if a payment is
received before the supply is made. The tax point is the date on
which VAT becomes due. Again, Notice 700 is helpful; chapters 14 and
15 describe the tax point rules.
Where supplies of service continue
for a significant period, i.e: several months, or more, then the tax
point rules are slightly different. This can occur in a wide variety
of businesses; construction, engineering, legal, professional
services, etc. The basic tax point would be when the service is
However, the supplier may wish to
seek stage payments, to assist his cash flow. A tax point is
created, in such circumstances, when he issues a tax invoice, or
receives a payment, whichever is sooner. If he issues a tax invoice
in one VAT period, and receives the payment in the next, then he
will have to account for the VAT before he is paid. One alternative,
which should be considered, is to issue a request for payment, which
is not a VAT invoice. The document should be clearly marked; “this
is not a VAT invoice. A VAT invoice will be issued on receipt of
payment.” This means that VAT will only be accounted for when the
money is received.