VAT jargon buster
There‘s often a lot of jargon used when talking about VAT, so it’s important to understand as much of it as possible.
To help you translate HMRC’s complex language we’ve identified the most commonly used VAT terms and provided some plain English definitions – hopefully you’ll find them helpful!
Accounting or Tax Period
This is the period of time reported in your VAT Return; usually three months.
Goods brought into the UK from other EU countries (different from goods brought into the UK from outside of the EU, which are known as imports).
An incorporated body; for example, a limited company, limited liability partnership, friendly, industrial or provident society.
This is when a business in one EU country sells and ships goods directly to consumers in another EU country; for example, internet sales.
Goods sent to countries outside of the EU.
Goods sent to another EU country.
Goods brought into the EU from countries outside of the EU.
The VAT you pay on purchases; whether supplies, products, goods or services used when running your business. Goods coming IN therefore INput VAT.
The VAT you charge on sales which your clients pay you. Goods going OUT therefore OUTput VAT.
Place of Supply
The country in which the supply of goods or services must be accounted.
Providing some form of goods or services (normally in return for payment, including barter).
Supply of Goods
When exclusive ownership of goods passes from one person to another; for example, I’ve paid for a hot cup of tea, so it now belongs to me.
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).
Goods and services sold or supplied by a taxable person which are liable to VAT at the standard, reduced or zero rate.
The total value (net of VAT) of the taxable supplies you make in the UK within one year. This does not include exempt items or any capital items which you own, such as buildings, equipment or vehicles for your business.
Tax Point or Time of Supply
The date by 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.
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.
Taxable supply subject to UK VAT at the current standard rate (20%).
Rate applied to quasi-essential goods and services; for example gas and electricity for domestic and residential purposes (5%).
Taxable supply subject to UK VAT at a rate of 0%.
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).
Why have “Exempt” and “Outside the Scope of VAT”?
There are two main differences to be aware of:
1. Sales and purchases exempt from VAT must be included in the total sales (box 6) and purchases (box 7). Items outside the scope of VAT don’t go on the VAT return (you wouldn’t include staff wages or employment tax payments).
2. If you’re using the Flat Rate Scheme, where exempt sales are included in the flat rate turnover, but sales that are outside the scope of VAT are not.