VAT rating

[Taf]

I have two questions about VAT to ensure that the VAT return is being prepared correctly.

1. If a supplier is not VAT registered how does a purchase from this person get recorded for bookkeeping purposes. Is it a standard rated supply with zero VAT, or is it a supply outside of the scope of VAT or is it an purchase of an exempt/zero rated supply.

2. Can someone briefly clarify the VAT rules relating to provision of constrution services. If it does get classed as non VATable, due to it being residential?? /new??/old??, how is it recorded, again for bookkeeping purposes- i.e. zero rated, exempt, outside scope or standard with nil VAT.

Thanks in advance for anyhelp on this matter.

[3pic]

Taf,

1. For a non-VAT registered supplier, I would treat this as a supply outside the scope of VAT (ie, no VAT charged, so no VAT to account for). It is certainly not an exempt or zero rated supply, unless expressly shown on the invoice.

2. The construction of a commercial property will be taxable at the standard rate. A residential new build property will be zero rated. Be careful with the phrase non-VATable. So first, a quick lesson in VAT rates !

Standard rate = 17.5%.
Zero rate = 0%.
Exempt/Outside Scope are not rates of VAT.

The supply of a commercial property is a taxable supply and will be standard rated (17.5%) - A residential property is also a taxable supply but 0% (zero rate).

That means you still account for the item as if it were a standard rated item, just that you happen to charge 0% instead of 17.5%.

The importance is that you are still
'charging' VAT, just at 0%. That is different to not charging VAT at all as it will affect how the business can recover it's input tax.

If you didn't charge VAT at all, then you'd not be able to recover any input tax (as would be the case for a small trader not VAT registered).

The zero rating allows the construction of a home to be 'vat free' to the customer whilst allowing the builder to get all thoses input tax costs back legally. Commercial properties are standard rated as by their nature, will be used for commercial (business) purposes.

As a VAT registered business, you need to record your input tax and output tax. Standard rated is easy enough. Zero rated means you declare no output for that transaction but you can still recover any input tax associated with it.

I trust that makes sense. But to answer question 2, a zero rated sale is treated as a taxable transaction so treat as zero rated.

[Taf]

Thanks for the advice 3pic. I know it doesn't make much difference but I was under the impression that i should have recorded it standard rated, but put zero in the vat. as the same product purchased from a larger supplier would have been a standard rated supply. I presume it doesn't have an effect on the overall VAT being reclaimed/paid, just affects, box 4 on the return (i think thats the right one)

[3pic]

No problems Taf.

You're understanding is fine, you can put in standard rated column if your prefer but with no vat charged - I guess it depends upon how complex you want your accounting system to be.

Box 4 is the correct box and it doesn;t affect the bottom line outcome.