VAT can be a strange and confusing beast.
It was first introduced in the UK in 1973 and now accounts for around 15% of government revenues – £143bn in total. It is a tax that is applied to the purchase of certain goods or services that are bought and sold within the UK.
Almost all goods or services are charged at the standard rate of 20%. Some are charged at the reduced rate of 5% (home energy) and then there are items charged at a zero rate – including basic foods, children’s clothing and newspapers. There are also items that are classed as being outside the scope of VAT, ie exempt. These include healthcare services and educational services. It’s important that you’re fully aware of the VAT treatment on the service that’s provided as it’s not always straightforward. For example, services provided by a psychologist deemed to be medical care, are exempt from VAT however services provided by psychotherapists and counsellors attract the 20% tax rate. To make things more confusing, if a psychologist were to provide the service of assessing a patient’s mental health for legal reasons, then this too would be charged at 20%.
If your taxable turnover is greater than £85,000 for a rolling 12-month period then you must register for VAT. Taxable turnover includes all sales aside from those that are exempt so even if your service is zero rated, it will still count as taxable turnover. Some businesses may also choose to register for VAT even if their turnover is less than £85,000 to create a more professional image.
If you’d like to discuss any of the above or have any questions, please contact us via the link below.
