An Essential Guide to VAT for Beginners

4 mins

Tax Preparation Specialist Provides Beginners Guide for VAT Rookies

VAT is seen as one of the most confusing taxes for both small businesses and consumers in general. While it is a familiar part of daily life, due to its regular appearance on till receipts and invoices, consumers are often unaware of why it is being charged. Meanwhile, a governmental review for the Office of Tax Simplicity showed that many small businesses find VAT a barrier to growth. Tax preparation specialist and Managing Director of DSR Tax Refunds Ltd, David Redfern, has provided a handy beginner’s guide to VAT to bring clarity to business and consumer confusion surrounding the business tax charge.

VAT, or Value Added Tax, is a business tax charged on certain goods and services. VAT-registered businesses are obliged to charge VAT on their business sales of good and services, as well as when hiring or loaning goods, selling business assets and when making commission payments. Redfern stated “These are known as taxable supplies and a business which is registered for VAT is required to charge the relevant rate of VAT on these taxable supplies. However, you cannot charge VAT on your goods and services if you aren’t registered for VAT with HMRC. While most taxable supplies are to be expected, there are a few which may come as a surprise – for example, VAT is still chargeable on goods which aren’t sold for cash but are bartered or part-exchanged instead. Items which are sold to employees are also classed as a taxable supply and must be subject to VAT if your business is registered for VAT”. Businesses which are registered for VAT must charge VAT on their taxable goods and services and are obliged to send a VAT return to HMRC on a quarterly basis.

Most taxable goods and services are taxed at the standard rate of VAT, which is currently 20%. The standard rate has remained at 20% since April 2011, although historically it used to change each April. Certain goods and services, such as child car seats and domestic fuel, are chargeable at a reduced rate of 5% while certain goods and services are classed as zero-rated. Redfern explained “Goods and services which are classed as zero-rated must still be reported on in your VAT return but you must charge a zero rate of VAT on them. Examples of zero-rated goods are children’s clothing and shoes as well as motorcycle helmets. Goods exported to non-EU countries are also zero-rated. In addition, there are certain goods and services which are exempt from VAT, such as medical and care services, education and vocational services as well as burial and cremation services. These don’t need to be reported on for VAT purposes although you should still record them in your general business records”. Goods and services provided to charities can benefit from a reduced rate of VAT.

Businesses are required to register for VAT if they have a VAT-taxable turnover of £85,000 or more. A business calculates its VAT-taxable turnover as the total value of all the goods and services it sells which are not VAT exempt. Redfern added “Unlike other taxes, this is a rolling 12-month threshold, not a fixed period such as a tax year or accounting period. This means that if you believe your turnover is close to the threshold, you need to keep a close eye on it and register for VAT when it exceeds the £85,000 threshold. You can register for VAT voluntarily even if your business is below the threshold if you believe it will be advantageous to your business but you won’t be required to do so. Once registered you must charge VAT on your non-exempt goods and services”. Once registered, a business will be required to submit a VAT return to HMRC every 3 months, reporting on their total sales and purchases, how much VAT the business owes and how much it can reclaim on business purchases. Businesses must submit a return even when there is no VAT to pay or reclaim. A Final VAT return will be due if you cancel your VAT registration.

Redfern concluded “While nearly all consumers are aware of VAT, fewer are aware of the circumstances when it is chargeable which can lead to confusion. For small businesses and start-ups, the idea that they would have to register for VAT can prevent businesses from growing to their full potential. While increased simplicity would be welcome, greater awareness will hopefully take some of the complexity out of VAT”.

For high resolution images or further information, click here

For more information on claiming allowable expenses and how DSR Tax Refunds can help you claim, please click here

About DSR Tax Refunds Ltd

DSR Tax Refunds Ltd (company registration 12541357) are a firm of tax rebate specialists serving clients nationwide. DSR Tax Refunds are tax preparation experts who specialise in identifying potential allowable expenses for tax rebates for clients. Their specialist team can help employed and self-employed subcontractors with all relevant paperwork to ensure their claim is handled in an accurate and efficient manner.

For more about DSR Tax Refunds, visit

For media enquiries, please email or call 0115 795 0232

DSR Tax Refunds Ltd

Company Registration: 12541357

Registered Office: Suite 637, 109 Vernon House, Friar Lane, Nottingham, NG1 6DQ

You May Also Be Interested In

Our experts have collected an extensive range of handy informational resources across a number of common taxation areas. If you can’t find what you are looking for here, check out our Resources section.