VAT

Value Added Tax (VAT) is an indirect tax charged on many goods (including works of art) and services that VAT-registered businesses provide in the UK.  It is charged on goods and some services that are imported from countries outside the European Union (EU), and brought into the UK from other EU countries.  If you are not registered for VAT it is illegal to add VAT to your invoices for fees or goods provided.

VAT is charged when a VAT-registered business sells to either another business or to a non-business customer; when VAT-registered businesses or self-employed individuals buy goods or services they can generally reclaim the VAT they've paid.

There are three rates of VAT, depending on the goods or services the business provides:

standard - 17.5% (until December 2010 when the rates go up to 20%)
reduced - 5%
zero - 0%

Registering for VAT is compulsory if the income of a business (including self employment) is over the threshold, currently (for 2009) set at £68,000.  Check the latest income threshold for compulsory registration on the HMRC website.

In a situation where your income has not reached the threshold, the main advantage to voluntarily registering for VAT is that VAT paid on 'inputs' – ie. things you buy for your business, like art materials or computer equipment – could be claimed back from the tax man.

You may also find it useful to register voluntarily if your main customers are registered for VAT and need a VAT invoice from you to claim the tax back themselves or your outputs are mainly zero-rated goods (or exports outside of the EU, which are all zero rated), so that you will be in a position of reclaiming, rather than paying VAT.

VAT calculations, however, are extremely complex and time consuming and must be registered quarterly (instead of annually, like income tax returns), and it is generally only advantageous to voluntarily register for VAT if the amount you can claim back is over the amount you spend administering your claims (or spend on a VAT-specialist accountant to administer them on your behalf).

More information on how to register for VAT can be found on the BusinessLink website, and HMRC has all the latest up to date information on VAT for the UK.

HMRC (Her Majesty's Revenue and Customs)
This Government department (amalgamation of old Customs and Excise with Inland Revenue) responsible for collecting both personal taxation and customs tariffs. It provides comprehensive information on its functions and your legal responsibilities in paying tax. It is your responsibility to register if you are self-employed by telephoning your nearest office or checking the site. Your tax office will send you the relevant forms and on once you have completed and returned them, they will issue you with a tax reference number. For enquiries or help with your tax return outside office hours, telephone 0645 000 444 or see the IR website for general guidance. Local Business Support Teams (for businesses, as opposed to freelancers/sole traders) provide help and advice to new or small businesses and employers, on topics such as payroll, employment and tax. Free workshops and one-to-one consultations are available.

Digita Tax Central
Online tax advice and calculation.

Charity Commission for England and Wales
The Charity Commission is the independent regulator for charitable activity enabling charities to maximise their impact; ensuring compliance with legal obligations; encouraging innovation and effectiveness; championing the public interest in charity and to promote the public's trust and confidence. Their website has a wealth of information and advice for existing charities and people interested in setting up a charity.

VAT Calculator

AIP Insurance
The Artists' Insurance Policy (AIP) arranged by a-n magazine on behalf of AIR members through Hencilla Canworth Ltd, can be purchased by artists with an a-n+AIR subscription. It offers cover for artwork and materials, studio and contents, and employers

[Sourced from: ArtQuest: http://www.artquest.org.uk/money/tax/vat.htm]

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