Robert Newey & Co

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VAT and other indirect taxes


The standard rate of VAT went up to 20% on 4 January 2011. This makes VAT even more important than it was before.

In a few situations there is a reduced (5%) rate of VAT. For example, VAT is charged at 5% fuel and power for domestic and certain other qualifying uses. The 5% rate also applies to certain conversions and renovation works on existing buildings and to he installation of energy-saving materials in certain buildings. This is not a complete list.

There are effectively three main VAT rates: standard rate (now normally 20%), zero rate and exemption. VAT is charged on supplies of goods and services, as well as on acquisitions and importations of goods.

When a trader makes a standard rated supply, the trader can reclaim VAT incurred in making that supply ("input tax") but must charge VAT at 20% on the trader's own supply ("output tax"). Assuming that a trader's output tax for a period exceeds the trader's input tax for that period, the trader pays the difference to HMRC after the end of the period concerned. If the input tax for a period exceeds the output tax, then the trader reclaims the difference from HMRC.

Zero-rating does not apply generally in the European Union. When a trader makes a zero rated supply, the trader does not charge output tax but is still able to reclaim input tax attributable to that supply.  In the UK zero rating applies to most supplies of food. It also applies to books, newspapers and children's clothing. This is by no means a complete list.

Exempt supplies are essentially disregarded for VAT purposes. A trader who makes an exempt supply does not charge VAT on that supply but cannot recover VAT incurred in making the supply. Examples of exempt supplies are healthcare and financial services.

When goods are imported into the European Union, VAT is charged. If the importer then makes a standard rated or zero rated supply of the goods, then the importer can reclaim the VAT on importation as input tax.

An important issue in VAT planning is to establish whether a supply is standard rated, zero rated or exempt. This will depend on the precise nature and characteristics of the supply.

Another important question is the place where the supply takes place. VAT is charged where the supply takes place.

As a general rule, if a business established in one member state of the European Union supplies services to a business established in another member state, then the place of supply is the place where the customer is established. If the customer is a consumer established in another member state, then the place of supply is the place where the supplier is established. If the customer belongs outside the European Union, then the supply is zero rated. This is only a general summary of the system: there are many details.

There are also rules as to the place of supply of goods where the supplier and the customer are established in different states and/or the goods move between states.

Customs duties

Customs duties, if applicable, are charged when goods enter the European Union. The rates are the same, regardless of which state the goods are imported into. Once goods have been imported into a member state and are in free circulation, then they can pass from one member state to another without further customs duties being payable.

Stamp duty land tax and stamp duty

Stamp duty land tax ("SDLT") is essentially charged on any acquisition of an interest in land in the UK. It is chargeable whether or not there is an instrument. Stamp duty continues to apply to transactions in shares and securities, including bearer instruments and acquisitions of certain partnership interests.


Examples of how we can help

  • Analyse situations and advise on the law and official practice.
  • Make recommendations on how to structure transactions in the light of clients’ commercial needs;
  • Advise on cross-border aspects;
  • Use our knowledge of the tax system as a whole to avoid difficulties that might arise from proposals that work for VAT;
  • Advise on customs duty and stamp duty issues;
  • Liaise with HM Revenue & Customs and others as required.
  • Help with disputes if these should ever arise.

Please contact us to find out more about our services and discuss your situation in more detail.

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