Taxation is the practice of governments in most countries of the world imposing mandatory taxes on individuals or organizations. Tax is mainly used to generate revenue for government spending, although it can also be used for other purposes. Government receives a great amount of revenue from taxes. Among other things, this money is used to improve and maintain public infrastructure, including the roads, we cross, and to fund public services, such as schools, educational institutes, emergency services, and social assistance programs.
What Is VAT Tax in the UK?
Most people have heard of VAT. What people may not realize is that a third of all government revenue comes from VAT. VAT not only affects businesses, but it also affects all of us in the purchases we make (both online and offline). Despite its importance, it remains one of the least understood taxes. For street consumers, VAT is part of the price and we don’t usually think about it. However, companies have a different view on this issue. VAT does not usually affect profits, but is nonetheless an important area of their business. Not taking this into account correctly can lead to serious problems.
Value Added Tax, also known as VAT, is a tax you have to pay when buying goods and services. The standard VAT rate in the UK is 20% and about half of the items that households spend money on are subject to this rate. There is a 5% discount on certain items such as child car seats and household energy. The reduced rate now also applies to hygiene products, although in the March 2020 budget the government announced that it would stop charging VAT on these products from 1 January 2021.
When you see the price of something in the store, any VAT will be added. There are also many items for which you do not have to pay VAT, such as most supermarket foods, baby clothes, newspapers, and magazines. VAT does not apply to all sales, and some are waived or out of scope. For example, insurance, health care, postage stamps, and education are not covered. Statutory fees, goods or services purchased and used outside the UK, and charity donations are not covered by UK VAT.
When do You need To Register For VAT Tax Return in the UK?
You must register for VAT Tax Return if your taxable turnover exceeds £85,000. Taxable revenue is the total revenue generated from sales that are not subject to VAT. Revenue including zero VAT rate is also counted as taxable revenue. Companies that do not exceed this threshold do not need to charge VAT when selling their goods or services. They also do not need to register with HM Revenue & Customs (HMRC). This revenue threshold is calculated over a rotating 12-month period, rather than a fixed period like the tax year. It can be any period of 12 months, for example from the beginning of June to the end of May. Unregistered companies whose revenue is close to the subscription limit should keep an eye on this. There are strict deadlines for submitting your registration and calculating VAT, once you’ve exceeded the revenue threshold.
If you live and work in the UK, you may be required to Income Tax Return Filing in the UK or a self-assessment tax return. Most UK residents are required to submit a self-assessment of VAT tax return if any of the following conditions are true:
- You earn at least £100,000 in taxable income
- You or your partner are earning at least £50,000 and claim a Child Benefit
- If you are Self-Employed
- You are a partner in a business
- You earn more than £2,500 in untaxed income (this income can include tips, rental income, or foreign income)
- You are a business executive (this does not apply if you have not received any remuneration for your position, including benefits such as a company car)
- You earn more than £10,000 before tax from savings, investments, or stock dividends
- You owe capital gains tax
- You make money in the UK while living in another country
This list is not exhaustive and the question of who should file a UK tax return can be complex and nuanced. Consult a qualified tax professional like MSCO for more details & clarification on Income Tax Return Filing in the UK. In terms of the reputation, size, and scope of our tax practice, MSCO is the leading Taxation Services London provider. The work we do is varied, with clients ranging from multinational corporations and government agencies to entrepreneurs and family businesses. We are leading the debate in the UK with tax authorities and governments, changing the way we all think about Tax.