What you must do when charging VAT

When you issue a VAT invoice to your customer, you must ensure that you charge the correct rate of VAT. Whilst most businesses in the UK charge VAT at the standard rate of 20% there are a number of different VAT rates and exemptions that you will need to be aware of. In the UK, there are three separate VAT rates, the standard rate of 20%, the reduced rate of 5% and the zero rate 0%.

In addition, there are two other categories that the supplies of goods and services can fall under:

• Exempt – where no VAT is charged on the supply.
• Supplies that are ‘outside the scope’ of the UK VAT system altogether.

Where a transaction is a standard, reduced or zero-rated taxable supply, you must:

• Charge the right rate of VAT
• Work out the VAT if a single price is shown that includes or excludes VAT
• Show the VAT information on your invoice
• Show the transaction in your VAT account – a summary of your VAT
• Show the amount on your VAT Return

If you charged the wrong amount of VAT and it is too high, then you are still responsible for accounting for the higher sum. If the amount is too low, then you must account for the amount you should have charged. Your customer can also ask for a replacement invoice to be issued reducing / increasing the amount of VAT due. The timing of finding an error can also impact on how the issue is resolved.

It is important to be aware that if the amount of VAT you charge is too high, your customer can only claim back the correct amount of VAT they should have been charged. A credit note will usually be required to rectify the situation.

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