VAT Jargon Buster

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.