What vat applies in the UK

What is VAT?

VAT (Value Added Tax) is a type of consumption tax. In the UK and the European Union, it is charged on goods and services.

In practice, businesses do not pay VAT – instead it is charged to consumers in the price of goods and collected by businesses, making it an indirect tax. Businesses are then responsible for declaring it to the tax office.

What vat applies in the UK?

There are 3 rates of VAT in the UK:

  • 20% – standard rate,
  • 5% – Reduced rate,
  • 0% – zero rate.

In addition, there are two additional groups of goods and services:

  • excluded from taxation (exempt),
  • outside the scope of UK VAT.

What rate for which goods/services?

The vast majority of goods and services in the UK are currently taxed at the rate of 20%.

A reduced rate of 5% applies to such things as gas and electricity for domestic use, energy saving products, home improvements, car seats and other products related to child safety.

The 0% rate applies to, among others, most food products, children’s clothes and shoes, printing and publishing services, products for the disabled, or products protecting life or health (e.g. motorbike helmets).

Importantly, from December 2020, the zero VAT rate also applies to books, newspapers and digital magazines. And from January 2021, it also applies to feminine hygiene products.

Excluded from taxation are insurance, financial, postal, educational, medical, hospital and recreational services. On the other hand, road and driving licence tolls and charitable donations, among others, are outside the scope of taxation.

When do you have to start paying VAT in the UK?

If you run a business in the UK, you can always choose to become a VAT payer at any time. However, there are occasions when registration is not a choice but an obligation.

You must become a VAT payer in the UK if:

  • your turnover in the last 12 months has exceeded £85,000,
  • you expect your turnover to exceed £85,000 in the next 30 days,
  • you are taking over an existing VAT registered business and intend to continue trading there,
  • you have a business registered outside the UK, but you sell services and goods into the UK and your annual sales have exceeded £70,000,
  • you run a business outside the UK but store your goods in the UK.

How to register for VAT in the UK?

If you meet one of the above criteria, you are required to register for VAT within 30 days. You can do this online at the HMRC website. To do this you will need, amongst other things:

  • your National Insurance (NI) number or UTR,
  • your business registration certificate,
  • your business bank account details.

VAT registration options

When registering online you will need to choose one of four options for paying VAT:

  • standard accounting scheme – the most commonly chosen quarterly settlement with HMRC. The entrepreneur is obliged to pay VAT as soon as the invoice is issued. They can also reduce it by deducting VAT on purchases.
  • VAT flat rate scheme – for businesses with an annual turnover of £150,000 or less. For example: accountants – 14.5%, advertisers – 11%, travel agents – 10.5%, but there is no possibility to deduct VAT from purchases.
  • Cash accounting scheme – created for companies that may have problems with liquidity. The obligation to pay VAT on sales only arises on receipt of payment from the customer. Similarly, VAT on purchases is not deductible until the amount due has been paid.
  • Annual accounting scheme – allows you to submit one VAT return per year (instead of four) and pay in instalments. This is for companies with a turnover of less than £1,350,000.

What is TAFTA?

Transatlantic Free Trade Area (TAFTA) is the most ambitious undertaking in the economic relationship between Europe and the US. Never before have so many issues been on the agenda at the same time. TAFTA provides for the elimination or significant reduction of customs duties, broader market access in services, intellectual property protection issues, increased access to public procurement markets, protection of foreign investment and dispute resolution between foreign investors and the host country. The reduction of non-tariff barriers, especially those related to differences in standards and norms and the simplification of administrative barriers will be of the greatest importance.

It will be an agreement subject to further additions and modifications over time, which should lead to regulatory convergence in the longer term. TAFTA is an opportunity to halt, or at least reduce, the rate of erosion of the positions of Europe and the United States in production and world trade. The agreement has strong support from economic circles on both sides of the Atlantic and from leaders of the US and EU countries. Liberalisation is expected to bring significant benefits to the parties, although not necessarily on an identical scale.

Objectives of TAFTA

According to official figures, the agreement under discussion is primarily aimed at creating a free trade area, which according to the European Commission is expected to bring benefits to citizens and companies in the form of:

● opening the US market to European companies,
● reduction of administrative formalities to be fulfilled by exporters,
● establishing new regulations which will make it easier to export, import and invest abroad under fair conditions,
● creating jobs and growth throughout the EU,
● lower purchase prices and increase choice.

Meanwhile, according to a study by the American Chamber of Commerce in Poland, the objectives of TAFTA are:

● further liberalise access to internal markets,
● elimination of investment barriers through better regulation,
● elimination of customs duties in mutual trade,
● elimination of costly non-tariff barriers that impede movement of goods, including agricultural goods
● improving market access in services,
● substantially reducing the cost of differences in rules and standards by promoting greater compliance, transparency and cooperation, while maintaining a high level of health, safety and environmental protection,
● develop principles and new modalities for cooperation on issues of global concern, including intellectual property and market mechanisms addressing the issue of state-owned enterprises and local barriers to discriminatory market access.

Consequences of TAFTA

TAFTA is an opportunity primarily for large EU and US companies and corporations. By removing barriers to transatlantic trade, it allows them to make greater profits and to exert pressure on countries’ decisions, especially in terms of legislation. It seems that this agreement will favour American (multinational) corporations, and thus will not significantly strengthen the EU as a global actor. This is evidenced by the constant lobbying of hundreds of experts and advisors employed by the corporations, while at the same time cutting off all other organisations and entities from the negotiations. There can be no doubt, however, that the economic, social and ecological costs will affect consumers and small businesses in particular, who have no chance against the powerful concerns.

Important dates

The agreement, in principle, should be signed when President Trump meets with President Juncker in Washington on July 25, 2018. But the European Union has made clear that it will not give up some of its standards and regulations to enter into any agreement.
One of the areas being discussed is the protection of data privacy of European citizens. The United States wants a model similar to what is in the Trans-Pacific Partnership (TPP), but for Europe this would be too much.

VAT ID – All information about the VAT identification number

In conducting business activity, entrepreneurs often conduct transactions with foreign partners, i.e. from other European Union or non-European Union countries. In order to correctly account for such transactions, taxpayers use a special number. This is the so-called VAT ID. Firstly, it should be emphasised that the VAT ID applies only to transactions with countries from the European Union. It is a tax identification number assigned to taxpayers so that they can make intra-Community transactions. The entrepreneur receives the so-called EU VAT ID number, which is preceded by a prefix appropriate for a given country. This additional designation identifies the country of origin of the entrepreneur using this number.

Intra-Community transactions may be made both by active VAT taxpayers and entrepreneurs benefiting from VAT exemptions. In case of active VAT taxpayers, the absolute obligation to register for VAT-EU takes place before the conclusion of a transaction:

  • intra-Community acquisition of goods (IAC),
  • Intra-Community Supply of Goods (IDP),
  • intra-Community provision of services, in relation to which VAT settlements rest with the purchaser of the service,
  • intra-Community acquisition of services

Taxpayers who are exempt from VAT (subjective or objective) must also register for VAT-EU before making transactions with an entrepreneur from another EU country, namely in the event of

  • intra-community acquisition of goods

What is the EU VAT return?

Entrepreneurs holding a European VAT ID who perform intra-Community acquisition of goods, call-off stock, intra-Community supply of goods or intra-Community supply of services transactions are required to send monthly a VAT-EU recapitulative statement. This document is not a form of tax return on the basis of which the VAT tax payable to the Tax Office is calculated. The VAT-EU recapitulative statement is for information purposes only and is a reporting document.

The VAT-EU recapitulative statement shall list transactions such as:

intra-Community acquisition of goods

intra-Community supply of goods

intra-Community provision of services

Intra-Community transactions and movements of goods under the call-off stock procedure

Deregistration of a VAT-EU taxpayer

In case of cessation of performing intra-Community transactions, an entity registered as the taxpayer of VAT EU shall be obliged to notify the Head of the Tax Office about this fact. By reporting the update of the registration notification (VAT-R) within 15 days from the occurrence of this circumstance. In case when the entity registered for VAT-EU does not submit VAT return for six consecutive months or two consecutive quarters,the Head of the Tax Office has the right to strike off the entity from the VAT taxpayer register. The taxpayer shall be notified about striking off the register by the Head of the Tax Office.

Brexit – XI number

Great Britain’s Brexit caused many changes in the functioning of the whole of Europe. Previously, the simple rules of the European Union regarding trade between countries within the community have now turned into new regulations and rules for exports and imports.

What is xi number and when to use it?

January 1, 2021 is the date from which every company is required to have an EORI number starting with XI for the sale and purchase of goods between Northern Ireland and non-EU countries. For example, to export from Northern Ireland to the European Union, it will be necessary for every company, whether they are importing or exporting goods in order for them to have an EORI number starting with XI. However, the requirement does not apply to firms who sell/purchase less than €150K worth of goods each year between Northern Ireland and non-EU countries. Similarly with companies selling/purchasing more than €150K worth of goods each year between Northern Ireland and non-EU countries in the course of trade (not merely personal imports), it is necessary that they have an EORI number starting with XI in order to import/export.

How do I get an EORI number? Who needs it?

Any company registered in Europe but also outside of the EU who wants to import and export goods from outside the European Union must have an EORI number. When a company, outside the European Union, sells goods from another country to be delivered in the EU, it must be identified in some way. Therefore, a special number is assigned to her. Now, in addition, for some transactions, an XI number will be added.

Regulation of xi number

As the UK is considered a non-EU country at the beginning of 2021, this rule also applies to companies trading between Northern Ireland and the UK. In order to obtain an EORI number starting with XI, you must have an EORI number starting with GB. However, as the UK will be considered a part of the EU when it is officially recognised as such by all EU member states, from 1 January 2021 it will be necessary for businesses trading between Northern Ireland and the UK to also obtain an EORI number starting with GB.

VAT numbers in transactions with other countries will have to have the XI number instead of the GB number. This will distinguish international transactions from domestic transactions. For example, if a UK company purchases goods from Northern Ireland and VAT is payable on the transaction, it will be necessary for the company to have an EORI number starting with XI number.

Although an EORI number is not required for sales above €150K per year, it is still advisable to obtain one since it can make importing/exporting more efficient. While firms trading between Northern Ireland and the UK are subject to the new requirement in 2021, they may choose to convert their existing EORI numbers starting with GB before then.

What is Intrastat and what does it involve?

Intrastat is a statistical system for collecting information and establishing the status of intra-Community transactions. Intrastat information is declared by economic operators using Intrastat export declarations and Intrastat import declarations.

Who is subject to Intrastat?

Why is Intrastat not more popular and familiar to traders? This is because not everyone who carries out intra-EU transactions is obliged to submit an information declaration. According to the regulations, the obligation to provide such information rests with natural or legal persons and organisational units without legal personality which are taxable persons for VAT purposes and which carry out exchanges with other European countries that exceed certain established thresholds.

A business will need to consult the Intrastat system if its exports or imports exceed one of these thresholds in a given fiscal year, or if such exceedance occurs in relation to contributions from the current year, even though transactions relate to the previous year. Importantly, a taxpayer who exceeds a threshold for e.g. exports only, must submit an information return only in this respect, not taking into account imports.

What is the difference between the basic and detailed thresholds? In the case of the former, the trader provides in the return more general data on his transactions with other EU states. This information includes:

the reporting period, the type of declaration,the code of the customs chamber to which the Intrastat declaration is addressed, the consignee on arrival, the consignor on departure,the representative, if the declaration is made by him,total invoice value in Polish zlotys,total number of items,item number,description of the goods,country code of dispatch for imports or country code of destination for exportstransaction type code,commodity code,net mass,quantity in the supplementary unit of measure,invoice value in Polish zloty,filler.As far as the taxpayer who exceeded the detailed thresholds is concerned, in addition to filling in the above-mentioned items in the declaration, he has to add data on: total statistical value, code of the delivery termscode of the mode of transport, the statistical value.

What is Intrastat declaration and how to submit it?

Declarations may be submitted electronically both by the entrepreneur directly or by the proxy assigned by the taxpayer.

The accounting period for Intrastat declarations is the calendar month during which the trader makes intra-Community acquisitions or supplies. The declaration must be submitted by the 10th day of the month following the month to which it relates. The taxable person may also choose to submit partial information for periods shorter than one month. In this case, however, it must be ensured that such partial forms together cover the whole reporting period.

Basic information about VAT in France

VAT in France is called taxe sur la valeur ajoutée – TVA. VAT was first introduced in France in 1954. Currently, French VAT law is contained in the main tax code called “Direction Générale des Douanes et Droits Indirects” (Directorate General of Customs and Indirect Taxes). This law is based on regulations created by the EU, where France is one of the founding countries.

VAT registration – when is it necessary?

Registration for VAT for both French and EU entrepreneurs is required in France when a company carries out:

  • Mail order sales to private individuals, such as online retailing, including platforms such as Amazon and Ebay
  • Selling goods from France to other European countries
  • Storing goods in a French warehouse as inventory for resale for more than three months,
  • Importing goods into France
  • Organisation of live events, conferences and similar events in France
  • Supply and installation services for longer than 12 months

In the case of ordinary and mail order sales to companies (entities registered for VAT in France) by non-French companies, according to French regulations, a so-called self-assessment of VAT should be carried out.

VAT in France – French VAT Rates, Process, Due Dates

The standard rate of VAT in France is 20% and this covers all services and goods that are not subject to reduced rates.

In addition, there are as many as three reduced VAT rates in France, namely 10%, 5.5%, 2.1%.

  • The reduced rate of 10% applies to unprocessed agricultural products, firewood, transport of persons, social housing, renovations to improve the standard of households (housing).
  • The reduced rate of 5.5% covers food, books as well as electricity and gas.
  • The reduced rate of 2.1% is a special rate that covers: sales of live animals for slaughter, certain cultural events and press publications, medicines covered by state reimbursement.

VAT treatment in France

The way VAT is calculated in France depends on the type of business and the annual turnover of the company. If a business exceeds €760,000 they must file an electronic version of their VAT return. VAT returns are submitted monthly, quarterly or annually to the SIR (service des impôts des entreprises) or DGE (direction des grandes entreprises). VAT returns in France must be sent by the 19th of the following accounting period.

VAT refund for a foreign company in France

As a foreign company trading in France and registered for VAT there, you will receive a VAT refund in case of overpayment. In case the company is not able to obtain the French VAT registration but at the same time makes taxable supplies in France or charges the French VAT rate on domestic goods or services, it can obtain the VAT refund.

What information is required to obtain a French VAT number and registration?

The French tax authorities require the completion of the appropriate forms and the submission of the following documents:

  • a VAT certificate, which is proof that the company is registered for VAT elsewhere than in the European Union (if applicable),
  • the company’s articles of association,
  • an extract from the company’s national commercial register.