Essentials of VAT: Part 2

In this second part of a two-part blog, we look at some more aspects of VAT registration.

What information should I put on a VAT invoice?

There is quite a lot of information that must be disclosed on a VAT invoice. The Revenue’s list is as follows which applies to invoices issued to UK customers. You might find some requirements are not applicable:-

– a sequential number based on one or more series which uniquely identifies the document (this basically means an invoice number)
– the time of the supply (ie the date the goods or services were supplied)
– the date of issue of the document (where different to the time of supply)
– the name, address and VAT registration number of the supplier
– the name and address of the person to whom the goods or services are supplied
– a description sufficient to identify the goods or services supplied
for each description, the quantity of the goods or the extent of the services, and the rate of VAT and the amount payable, excluding VAT, expressed in any currency
– the gross total amount payable, excluding VAT, expressed in any currency
– the rate of any cash discount offered
– the total amount of VAT chargeable, expressed in £ sterling
– the unit price
– the reason for any zero rate of exemption.

There are extra rules if you’re using the margin rate scheme (sometimes used by traders of second-hand goods).

What does being registered for VAT involve?

VAT registered businesses must prepare a form called a “VAT return” and file it online with the Revenue every three months. (There are some circumstances in which VAT returns are filed more or less frequently.)

The VAT on sales is called “output VAT” and the VAT paid on expenses is called “input VAT.” The amount of output VAT and input VAT is stated on the VAT return and the difference is paid over to the Revenue. You must also disclose your total income and expenses on the VAT return, along with any sales or purchases to or from the EU.

VAT registered businesses are required by law to keep good financial records and they must be kept for six years. “Financial records” covers anything and everything to do with your business finances. Typical items would be bank statements, invoices, paying in books, bookkeeping records, VAT return calculations and annual accounts. The Revenue’s definition of business records is wide so if in doubt whether to keep paperwork or not, either keep it or ask your accountant for advice. The business records will be needed to prove the VAT return figures in the event of a Revenue enquiry (and there’s a financial penalty for failing to keep records) so it’s well within your interest to ensure adequate records are being kept.

What’s the difference between zero rated VAT and exempt VAT?

This may seem confusing to have two descriptions for essentially doing the same thing – selling goods or services without charging any VAT. However, the distinction is important.

If zero rated VAT is charged, this means VAT on the expenses (“input” VAT) relating to that sale can be claimed back from the Revenue. If a sale is exempt from VAT, the input VAT on the related expenses cannot be recovered.This means that for businesses operating predominantly in the zero-rated VAT market – such as new build residential properties – it could be worth the administrative burden of registering voluntarily for VAT in order to recover the input VAT on the expenses. If you think this apply to you, we would be happy to advise you further.