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Vat registration and deregistration assessment

Abul Nurujjaman, 

VAT is value added tax which can be defined as a consumption tax based on value added to goods and services (European commission, no date). Similarly it can be viewed as a tax of consumer spending and goods imported into the United Kingdom (UK).


As a general tax it is applicable to commercial activities of business that includes the provision of services and the manufacturing and distribution of products. Businesses are expected to register for VAT once they go above a threshold specific to their company. Customers that may be registered for VAT and use the goods or services for commercial purposes can reclaim the VAT on the products they have purchased. This accounts for value added on the activities of a business.  


VAT is charged on any sale as a percentage of the sale price but the taxable individual can deduct all tax already paid at the previous stage. As a result, taxation is not doubled and tax is charged on the value added at every production and distribution. The final price of the product is equivalent to the addition of the values at the previous stage. The last VAT paid consists of the sum of the VAT paid at each stage.  


Channel S on 30/12/2015


Current registration and deregistration limits: 


VAT registration limits in the final 12 months for supplies is related to businesses whose supplies are taxable. This will involve supplies that VAT is charged at a given rate and HMRC needs to be made aware of if your revenue goes above the limit in a 12 month period.  

The rates can either be zero, standard or reduced rate. The limits for registration is £83,000 and the deregistration limit or threshold is £81,000 in 1st April 2016. 


 The history of VAT: 


VAT was introduced in the UK in 1973 and was just a 10 percent tax on goods and services purchased. This was a requirement of joining the EEC (European Economic community) which is now the European Union (EU). In the early years the imposition of the VAT, the level of tax, did not exceed 10 percent except with petrol and at one time electronics which in those days were seen as luxuries. There were some parts of the government that insisted that particular items were essential and VAT should not be charged on customer purchase. These items such as books and food in some EEC countries at the time were charged at a zero rate. 

The rate on 
luxury goods under the leadership of Margret Thatcher was discarded and then changed into the higher standard rate which was raised from 15% to 17.5% in 1991. Prime Minister Sir John Major increased the rate of VAT on utility bills from being zero rated to 8%. This was later reduced to 5% under the administration of Gordon Brown.  

Food and drink typically consumed by humans such as bread and milk (daily essentials), are not subject to VAT charges or are zero-rated. However, foods such as alcohol, takeaways and snacks are charged on a VAT standard rate because they are deemed as none essential. For example, if you were to purchase fresh whole carrots it will not be subjected to VAT however if the carrots had been shredded or chopped then you will have to pay a standard rate. This is because according to HMRC the customer didn t prepare the carrot by shredding it. A criticism of this guideline is that it does account for unconventional products such as smoothies, which is a food that can be made at home and bought so the zero rating rules apply. In the past there were not a lot of people drinking smoothies.


In the past this has led to some mighty big court cases. One case involves chocolate covered snacks such as Jaffa cakes. The lawyers argued that this snack was a cake and therefore should be subjected to a zero rate of VAT (Wallop, 2010). The lawyers won this argument against HMRC which still watches that industry heavily. However, it should be expected because for HMRC it is one of its most effective ways income is generated for the agency and government. In fact it has been suggested that every point added to the VAT is expected to bring in an estimated £4.5 billion. 


Historically, the VAT registration and deregistration limit in 1st April – 31st March 2015 for example was £82,000 and £80,000 respectively. During 1st April 2013- 31 March 2014 the VAT registration and deregistration limit was £79,000 and £77,000 respectively. It showcases that over time in the future the VAT registration and deregistration limit will increase year on year.  


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Where VAT is going ? (future of VAT):

VAT is currently 20%, this is however subject to change due to the government taking over. Looking into the future and observing the current state of the economy, VAT is more likely to increase to accommodate new or raising expenses of the new government and to combat possible inflation.


Disclaimer: The information provided in this blog is brought to you by Taj Accountants. As you are reading this blog of your own free will, any information taken from this blog is at your risk. Before using the information provided to apply, to your business seek professional or legal advice.Taj accountants will not be liable for any damages.

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