value added tax

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value added tax (VAT)

a tax on consumer expenditure collected on business transactions, imports from outside the EU and acquisitions from other EU countries. All EU countries apply VAT in accordance with the Sixth Directive. Many non-EU countries have adopted a tax very similar to VAT, e.g. Mexico, Russia, New Zealand and Australia. The UK law is based upon the Value Added Tax Act 1994, statutory instruments made under that Act and parts of certain VAT notices published by HM Revenue & Customs which are law because of powers given by statutory instrument. The main charge to VAT applies where there is a supply of goods or services in the UK, or the Isle of Man, by a taxable person in the course or furtherance of business and the supply is not specifically exempted. A taxable person is any individual, partnership, company or other entity which is registered for VAT, or ought to be registered because of making taxable supplies above certain value limits. A person who makes taxable supplies below these limits can register voluntarily in order to recover VAT incurred on purchases of goods and services (inputs) related to making those taxable supplies.

There are three rates of VAT: a standard rate, a reduced rate and a zero rate. There is a fundamental distinction between zero-rating and exemption because a business making zero-rated supplies can recover all the related INPUT TAX whereas the VAT incurred on goods and services acquired in order to make exempt supplies cannot be recovered and forms an additional cost to that business. Even businesses which could otherwise reclaim VAT on their inputs cannot normally do so in respect of cars and business entertainment. All taxable persons must keep and preserve records and accounts of all taxable goods and services which they receive or supply in the course of their business, as well as records of any exempt supplies that they make. Such records must normally be kept for six years. There are a range of financial penalties and interest charges to encourage people to register for VAT on time, to send in accurate VAT returns and to make payments on time.

Collins Dictionary of Law © W.J. Stewart, 2006
References in periodicals archive ?
Even if your business has not yet reached the VAT threshold you may decide to register voluntarily as being VAT registered means you are able to claim back any VAT that you have been charged on purchases made for the business.
All VAT registered businesses will have to maintain digital records for VAT and submit their returns digitally from April 2019 - just days after the UK leaves the EU.
While the design of the VAT system has not been announced, typically suppliers and organisations prefer doing business with companies that are VAT registered so they can issue VAT invoices.
But building union UCATT is warning that these schemes can be storing up problems because the builder becomes VAT registered and the taxman will be expecting quarterly returns.
However, if your business is over the threshold - PS79,000 in the UK - you have an obligation to be VAT registered. Additionally, it is compulsory to register if the value of goods you import from other EU countries exceeds the threshold or if you have taken over another VAT-registered business.
London, United Kingdom, December 20, 2012 --( EFS Consultants, one of world's fastest growing corporate services providers now offer a simple 3 step process for purchasing VAT Registered Companies.
Nigel Westman, partner of Clough & Company in Cleckheaton, said: "Most VAT registered businesses have been required to submit their VAT returns online since April, 2010, but these new rules which came into effect on the April 1, 2012, mean that all businesses must now do so.
If your firm is VAT registered, you can claw back a further 20 per cent VAT from the purchase price.
"If a retailer is VAT registered that 5p is deemed to include VAT at 20% - essentially, you are paying 4.17p for the bag and the rest is VAT," she said.
For all VAT registered businesses there will be the added burden of filing a VAT return which includes both the old and new rates of VAT.
Most VAT registered businesses will pass on the rate increase to consumers with immediate effect.