VAT isn’t the easiest concept to grasp, and the language may make it appear much more difficult. To help you make sense of it all, we explain what HMRC means by some of the most used VAT lingo.

12-Month Period

This is the rolling 12-month period before this point in time for VAT reasons, not a calendar, financial, or tax year. So, if you’re approaching the threshold, you’ll need to keep a close check on your numbers. If your annual turnover exceeds the threshold, you must register for VAT.

Accounting scheme

There are several VAT accounting systems available, which might impact how you report and pay VAT. Learn about the various VAT systems and their criteria.

Deregistration

You can cancel your VAT registration if the business is no longer eligible or if it stops trading. Cancel within 30 days of becoming ineligible, or you might attract HMRC penalties!

Disbursements

Disbursements are expenses incurred by your company that you subsequently pass on to your customers. They differ from expenses in certain ways, and the distinction has significance for VAT. More information may be found in our guide.

Domestic reverse charge

It is the customer’s obligation, not the supplier’s, to account for VAT on some products and services. This is known as the domestic reverse charge, and it applies to goods and services such as computer chips and emission permits, as well as VAT-registered Construction Industry Scheme enterprises.

Effective date of registration

This is the date you went over the registration threshold or requested voluntary registration.

Exempt goods and services

These are goods and services that are exempt from VAT. For example, insurance, postal stamps, or doctor-provided health care. The government website has a comprehensive list of VAT-exempt items and services.

Out of scope

This refers to goods and services which are outside the VAT tax system, that you can’t charge or reclaim VAT on. Charges outside the scope of VAT typically include charges made by the government, such as MOT testing or the London congestion charge. Another typical example is the wages that you pay to employees.

Registration

Registering for VAT tells HMRC that your business will now start making regular VAT submissions.

You must register for VAT if:

• Your business’s VAT taxable turnover is more than £85,000 in a 12-month period.
• You expect your taxable turnover to go over £85,000 within the next 30 days

Registration exception

If your taxable turnover only temporarily exceeds the threshold, you can ask for a registration exemption. Send documentation to HMRC demonstrating why you believe your VAT taxable turnover will not exceed the de-registration level of £83,000 in the following 12 months. HMRC will either confirm your exemption or enrol you in VAT.

Registration threshold

The taxable turnover figure that makes your business liable for compulsory VAT registration. The current threshold is £85,000. It usually increases on 1 April each year.

VAT number

This is the unique reference number that HMRC uses to identify your VAT registration. Every invoice must include your VAT reference number.

VAT rate

This is the rate of VAT which applies to goods and services.

• Standard rate: This is the most common, and is 20%
• Reduced rate: Applies to some goods and services, such as gas and electricity
• Zero rate: VAT is charged, but at 0%

Voluntary registration

Some businesses find it useful to register for VAT even though their turnover is less than registration threshold. This is known as making a voluntary registration. There can be several reasons for doing this, including being more tax efficient.

Taxable turnover

VAT taxable turnover is the total value of your UK sales that aren’t VAT exempt, including:

• Goods you hire or loan to customers
• Business goods that you use for personal reasons
• Goods which you barter, part-exchange, or give as gifts
• Services you receive from businesses in other countries that you had to ‘reverse charge’
• Building work over £100,000 which your business did for itself
• Zero-rated items

Zero-rated items

Zero-rated means that the goods are still VAT-taxable but the rate of VAT you must charge your customers is 0%. You still have to record them in your VAT accounts and report them to HMRC. Examples include children’s clothes and shoes, or motorcycle helmets.