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from VAT. Output VAT is not charged on such supplies and, in principle, input VAT attributable to such supplies cannot be reclaimed (or the claim is restricted).
Relatively small businesses may be able to reclaim all their input VAT - even for their exempt supplies. The input VAT attributable to their exempt supplies must not exceed £7,500 a year and must be no more than half the VAT on all their purchases.
•Exempt supplies include: insurance, finance, health, education, and burial and cremation services.
•In general, leases and sales of non-domestic land and buildings, other than newly built ones, are exempt, unless the option to tax has been exercised.
•A taxable person may choose to charge output VAT on supplies of existing buildings and land (including rents) that are not used for residential or charitable purposes.
•Sales of new buildings are standard-rated unless they are used for residential or charitable purposes.

Zero-rated supplies

If a business makes zero-rated supplies, it does not charge VAT on supplies but can reclaim input VAT.

Zero-rated supplies include :
•Most food and some drinks - but not catering, restaurant meals or hot take-away food.
•Domestic supplies of water and sewerage.
•Books and most other publications.
•Sales of new residential buildings and buildings for use by charities.
•Supplies of services by contractors when constructing new residential buildings or buildings for charities.
•Alterations to some buildings where listed building consent is needed.
•Public transport of passengers.
•Drugs, medicines and aids for the disabled.
•Clothing and footwear for children.
•Exports of goods and certain services to non-EU countries.
Reduced rate supplies

Some supplies are charged at a rate of 5%. They include:
•Domestic power and fuel and certain energy saving materials for residential or charitable use.
•The grant funded installation of heating equipment and the connection of a mains gas supply in the sole or main residence of an individual aged 60 or more or in receipt of social security benefits.
•Woman's sanitary protection products.
•Children's car seats.
•Cycle helmets.
•Conversions of residential property into a different number of dwellings, certain conversions into care homes or multiple occupancy dwellings, and certain renovations or alterations of property that has not been lived in for three years.
EU single market

Where sales are made to businesses that are registered in other EU countries, the supplier need not charge VAT.
•The customer's VAT number must be shown on the sales invoice.
•The customer is then responsible for accounting for output VAT on the goods on its own VAT return, but may claim input VAT if the goods are for use in making taxable supplies.
•However, output VAT must be charged on sales to private individuals in other EU states. Where such sales exceed that state's registration threshold, the trader must register for VAT in that state.
Collection of VAT

Registered traders normally have to submit VAT returns, and pay any VAT due, every three months.
•Traders who regularly reclaim VAT from Customs and Excise may apply to submit monthly returns.
•Some large companies have to pay monthly.
•Tax on imports from outside the EU has to be paid at the time of importation, unless special arrangements are set up.
•Traders with a turnover of £1,350,000 a year or less can complete annual returns only, making nine monthly VAT payments on account, with a final payment due along with the year-end return.
•Very small businesses can simplify their accounting by applying to pay VAT at a flat rate on total turnover without deducting input tax. The business must have taxable turnover (including exempt supplies) up to £150,000 and total turnover of not more than £187,500. The rate is determined by trade sector.
•Penalties are charged for late or incorrect VAT returns.
•A default surcharge of between 2% and 15% of the VAT payable is charged where returns are late.
•A penalty of 15% is charged for serious or persistent misdeclarations.
•Interest can also be charged on VAT paid late.

Author Mr.Bhaskar Thakkar is a practicing Chartered from India president of Ms. BT Associates and partner in M/s. Global Associates. The said firms are located in the eastern province of India having 150 employees. The firm is specialized in providing Accounting, Tax and Legal Services. They have diversified business in CAD conversion and drafting services.For more information visit www.jobs2india.com www.convert2cad.com www.btassociate.com

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