When a VAT registered trader sells goods or services, they will normally have to add VAT to their sales. For most things this will be at the standard rate of 20%. However, some goods and services are exempt from VAT, or subject to VAT at a lower rate. Other VAT-registered traders will be able to reclaim any VAT charged, but non-registered traders and the public will not. Accordingly, the latter will sometimes try to persuade a trader that a lower rate applies when it does not. As the trader is liable for any underpayment, possibly with penalties, it is important that they get the treatment correct. The following are two common areas where such requests will be met.

Some charities will claim that they do not have to pay VAT on any goods and services. However, there are actually only a restricted number of items for which this applies. These mostly relate to items that actually further the aims of the charity as opposed to those related to the day to day administration. The most common example is stationery. If a charity is purchasing pre-printed appeal letters seeking donations, then those are zero-rated. If they are simply buying envelopes and paper for use in their offices, that is standard-rated as normal. More detail on how supplies to charities are treated for VAT can be found here. (tinyurl.com/y8mgdxl3)

The other common problem area is when there is a mixed supply. If you are simply selling a number of different items, this is not an issue. Each can be detailed separately on your invoice, and the different VAT rates apply. The problem arises when you are providing a group of goods and services as a package. In this case, the VAT rate will depend on what the main item you are supplying is. For example, if you are providing a training course, you may also supply manuals or other printed materials to students. The printed materials would normally be zero-rated but, because they are part of the training, they become part of a single standard-rated package instead. This would be the case, even if you showed them separately on an invoice. As a rule of thumb, if a customer would be unhappy if an item were omitted, it is likely to be considered a package at a single rate.

VAT can be a complicated tax to administer. If in doubt, seek professional advice.

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