UK Value Added Tax (VAT) Registration
What is UK VAT?
In the UK, VAT is chargeable on taxable supplies produced by taxable persons. Credit for allowable VAT paid to other businesses and the net balance is payable or reclaimable - normally on a quarterly basis.
UK VAT paid on purchases and expenses (inputs) is set off against VAT charged on sales (output tax). Only the net difference is paid to the government (i.e. tax on the value added).
In a start-up situation, or when trading as a branch operation and carrying out marketing activities only, there may be expenses but no sales. In this case the input tax can be reclaimed from HMRC, provided the UK entity is VAT registered.
Thresholds for UK VAT registration
A UK trading entity must register for VAT if its turnover is expected to be more than £82,000 per annum.
Companies that are not established in the UK and make taxable sales of goods or services in the UK must register and account for UK VAT. This means that any foreign business trading in the UK (where the place of supply is the UK) will be required to register for VAT. This will not affect EU businesses covered by the distance sales rules, as these rules will still apply to those businesses.
The standard rate for VAT in the UK is 20%. Various criteria must be met in order for a reduced rate or zero rating to be applied before goods can be considered exempt or outside the scope of VAT.
Can I reclaim UK VAT?
Provided that the UK entity is registered for VAT, a business can generally claim the VAT back on its purchases. This is possible where the purchases relating to the goods or services sold are liable for VAT. Some VAT cannot be recovered.
VAT in the UK is complicated and it can be a significant liability for your UK business if it is not properly understood. When we initially speak with an overseas company looking to set up in the UK, we discuss their objectives as well as if and when it is appropriate to register for VAT.