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Value Added Tax (VAT)

Here’s the good news: you won’t have to register for VAT until your turnover reaches £82,000 (in 2015/16). Plus, many services provided by health professionals are exempt from VAT altogether.

The following guide explains how VAT works, which services are exempt and why you might decide to register for VAT early.

Note: this article is not intended to replace the advice of an accountant or HMRC. You should always check with them before making any business decisions.

What is VAT?
VAT is charged on many goods and services. It’s only charged by VAT-registered businesses, who are obliged by law to give it to HMRC.
If VAT has been charged on something you buy, you will have to pay it, whether you’re VAT-registered or not. 
However, VAT-registered businesses can claim back the VAT on anything they have purchased

How much is it?
It depends on the goods or services that are provided. There are three rates:

  • standard - 20 per cent
  • reduced - 5 per cent
  • zero - 0 per cent

Some things, such as books, are exempt from VAT altogether.

Are private practice services exempt from VAT?
Some are, and some aren’t. This is a confusing area, as you will see from the table below:

EXEMPT Treatments provided by some psychologists, osteopaths, physiotherapists and chiropractors, occupational therapists and arts therapists.
NOT EXEMPT Treatments provided by psychotherapists, acupuncturists and hypnotherapists. Any medico-legal work including expert witness testimony. Journal articles. Therapeutic treatments of animals.

 

The rules can change, so make sure you check with HMRC or your accountant. This is a complex area and again you may like to check this out with your accountant

Is it compulsory to register for VAT?
Yes, it is compulsory, but only when you have a vat-taxable turnover of £82,000 or more in a 12 month period (2015/16), or if you think your turnover will soon go over this limit. If all of the goods or services you supply are exempt from VAT you won’t need to register for VAT.

What records will I need to keep?
As well as normal accounting records (see our Record Keeping article), you will also need to keep a record of all VAT sales and purchases. In order to simplify the process for businesses, there are a number of VAT accounting schemes - visit http://www.hmrc.gov.uk/vat/start/schemes if you’d like to find out more.

The VAT Return
If you’re VAT-registered you’ll need to submit a VAT return, usually quarterly, to HMRC. This can be done very quickly online. If the amount of tax you have charged on your sales (known as output tax) is greater than the VAT you have paid on your purchases (known as input tax), you will need to send the difference to HMRC along with your return.

Is opting to register for VAT madness?
For some types of business it is worth considering registering for VAT even if the turnover is below the threshold. This is because VAT-registered businesses can claim back the VAT on purchases. So, registering early makes sense for a company that needs to make large purchases. It can also be seen as conveying a more professional image.

Should I register my private practice for VAT early?
In our opinion, you should only consider registering for VAT when you are close to meeting the £82,000 turnover and if you supply services that are not exempt. If you’re at all unsure, speak to an accountant or visit the HMRC website for further advice.