Guidance for VAT Clients

VAT can feel complicated, but at its core it comes down to two things

1. Keeping the right records

2. Understanding when VAT applies — and when it doesn’t

This article gives a high-level overview of what I expect clients to do to stay compliant and avoid problems later on.

It isn’t exhaustive — VAT is full of exceptions — but it covers the fundamentals most businesses need to understand.

When should you charge VAT

VAT is usually charged when you sell goods and services to customers in the UK.

The standard rate (26-27 = 20%), is predictably charged on standard-rated supplies. Most goods, Professional services, Trades and construction work, Consultancy and Retail sales. A reduced rate (26-27 = 5%) is applied in less common circumstances, mostly energy services.

Confusion often arises between Zero rated and Exempt supplies.

Zero rated supplies are still potentially taxable, however their current rate is 0% (Food, books, kids clothes etc). They still require VAT records, and still appear on the VAT return.

No VAT is charged on Exempt supplies either. However, these supplies tend to come from industries outside of the VAT regimen all together, including Residential Property, Financial Services and Insurance.

When can I reclaim VAT

You can normally reclaim VAT on goods and services used for business purposes.

The biggest mistakes I see is when clients try and reclaim VAT in the following scenarios:

• When they haven't actually been charged VAT - e.g. from vehicle tax or insurance premiums

• VAT suffered when entertaining their clients (not allowable)

• Overseas VAT charged by foreign suppliers

• VAT suffered on the personal expenses

Most VAT problems arise however from simply bad habits rather than misinterpretation of complex law. Normally more diligent record keeping and asking questions when uncertainty arises, resolves most down-stream problems.

I will try and catch as many of these mistakes as I can. However the only sure way of compliance is have good bookkeeping discipline, and to query when you're not sure.

VAT Records and Documentation

You are responsible for ensuring that valid VAT evidence exists and is retained properly, to support the entries on your VAT return.

Evidence normally consists of point of sale receipts and invoices raised or received.

Whilst I would advise you to, it isn't essential for you to attach corresponding evidence to each accounting record in your books, however you should ensure that this evidence can be easily recalled using cross referencing as necessary.

If you employ me to assist with your VAT returns, I do not perform audits on your evidence, and you do not need to provide this evidence to me.

However I accept this task only on the basis of your ongoing assurance that you have an appropriate evidence in place.

Final Thoughts

VAT compliance doesn’t require perfection — but it does require:

• Good records

• Consistent processes

• Basic awareness of VAT rules

If in doubt, it’s always better to ask before acting.

That small conversation often prevents much bigger problems later.