You’re trying to understand what VAT means and everything in between. From VAT rates to input tax, our helpful VAT jargon buster has got you covered.
What is VAT?
VAT stands for “value added tax” and is a tax added to most products and services sold by VAT-registered businesses. Businesses have to register for VAT if their VAT taxable turnover is more than £85,000. To find out more about VAT, click here to go to HRMC’s website.
Our complete VAT Jargon buster
Accounting period (or Tax Period)
This is the period of time covered by your VAT Return; usually quarterly.
Acquisitions
Goods brought into the UK from other EU countries (often confused with ‘imports’ but these are different).
Corporate Body
An incorporated body such as a limited company, limited liability partnership, friendly, industrial or provident society.
Distance Sales
When a business in one EU country sells and ships goods directly to consumers in another EU country; for example, internet sales or mail order sales.
Dispatches
Goods sent to another EU country.
Exports
Goods sent to a country outside of the EU.
Imports
Goods brought into the EU from countries outside of the EU.
Input Tax
The VAT you pay on purchases; whether supplies, products, goods or services used when running your business. Goods coming in therefore input VAT.
Output Tax
The VAT you charge on sales. Goods going out therefore output VAT.
Place of Supply
The country in which the supply of goods or services must be accounted for VAT purposes.
Supply
Providing some form of goods or services.
Supply of Goods
When exclusive ownership of goods passes from one person to another.
Taxable Person
Any business which buys and sells goods or services and is required to be registered for VAT. This includes individuals, partnerships, companies, clubs, associations and charities (although some products are not eligible for VAT such as books).
Taxable Supplies
Goods and services sold or supplied by a taxable person which are liable to VAT at the standard, reduced or zero rate.
Taxable Turnover
The total value (excluding VAT) of the taxable supplies you make in the UK within one tax year.
Tax Point (also knows as Time of Supply
The date which you must account for VAT. For goods, this is usually when you send the goods to a customer or when the goods exchange hands. If you provide a service, this is usually when the service is performed or completed.
Partial Exemption
Where a business incurs input tax on both taxable and exempt activities, it is partially exempt and will probably have to carry out calculations to split the VAT incurred on expenditure between what can and cannot be claimed.
VAT Rates:
Standard Rate
Taxable supply subject to UK VAT at the current standard rate (20%).
Reduced Rate
Rate applied to quasi-essential goods and services; for example gas and electricity for domestic and residential purposes (5%).
Zero-Rated
Taxable supply subject to UK VAT at a rate of 0%.
Exempt Supply
A supply exempt from VAT by law; for example, postal services provided by Royal Mail. It is not a taxable supply and generally does not allow the recovery of VAT incurred on associated expenditure.
Outside the Scope of VAT
Goods and services that are completely outside the scope of VAT altogether; for example, taxes, MOT certificates and tolls for publicly operated bridges and tunnels (as well as wages paid to employees).
If you found our VAT Jargon Buster helpful then take a look at our other accountancy and business blog posts.
