Posted: 16. October 2019 by: Rupert Tennant

Who’s Exempt From Paying VAT?

VAT stands for value-added tax, and it’s one of the most common ways to pay taxes in Europe at least. It’s basically a sales tax that’s paid at each individual sale based on how much the price exceeds and cost of producing and selling a good or service.

This tax is paid after you go above an allowance for your yearly turn over. However, there are those who decide to pay their taxes before that since VAT has its benefits in terms of refunds and tax benefits.  On the other hand, there are those who are exempt from VAT altogether.

The allowance

There’s a threshold set for paying VAT. After your company goes beyond that amount, it’s obligated to pay the VAT.  The allowance isn’t about yearly income but yearly turnover meaning that it’s about all the money going through your business in a year. The allowance is set at £85.000.

There are, however, those who decide to pay VAT even though they are not obligated to mean that they pay even if their turn over is less than £85.000. That’s because that way they get a refund for the amount of VAT they paid on the necessary equipment.

Exempt goods and services

There are a few goods and services on which VAT isn’t paid at all regardless of what the turnover is. If you’re working with these goods and service you want to need to register for VAT. These include:

  • Finances, insurance and credit
  • Education and training
  • Fundraising events
  • Subscription to membership in organizations
  • Selling and leasing land and buildings


These aren’t zero rate goods and services but exempt goods and services. That means that you don’t need to apply for VAT. With zero rate goods and services you do need to apply, but you don’t pay anything.

Exempt businesses

Some businesses are exempt from VAT as a whole regardless of what they do and how much do they make. These are the businesses that only work with the companies and for the companies that are exempt from paying VAT.

The same goes if the business needs to purchase items that are exempt from VAT for running and operating their business or if the business is unable to keep the records needed for the VAT due to the nature of the way it’s doing business.

Partly exempt businesses

There are companies that work with businesses that are exempt on one end and with the general public on the other. They are so-called partly exempt businesses. This means that they don’t pay VAT on the part of the financial interactions that are not paying VAT themselves and that general VAT rules apply in other cases.

This also means that companies aren’t able to claim refunds on the parts of their financial transactions that are not included in the VAT systems. Others that are included in the VAT systems work on general rules, and there are VAT refunds you could claim.

Non-businesses

There are other rules that apply for non-businesses. This means that NGOs don’t pay VAT and don’t need to apply for it in any way. This is the case for charitable and other community organizations that aren’t made for generating profit.

The rules are a bit more complicated when it comes to businesses that make some of their financial decisions in a non-profitable way as well. The financial transactions that are non-business related aren’t subject to VAT rules, and there are no VAT payments that you need to make. However, you’ll need to keep records to prove this fact formally.

Capital assets

Capital assets are the assets that a business needs to purchase in order to run its operations and be functional on the market. The purchases of these assets aren’t subject to VAT, and you don’t need to pay any VAT on them, but you need to prove that the purchase was made in order to gain a capital asset.

The exemptions for capital assets go as follows:

£250,000 or more on land or buildings, or on building or civil engineering works
£50,000 or more on a single computer or piece of computer equipment
£50,000 or more on an aircraft, ship, boat or other vessels

Conclusion

VAT is a value-added tax, and that’s one of the most common taxes in the UK. It’s paid at the point of sale and this easy to collect. There are a few businesses that are exempt from VAT. This is based on how much of a turn over a business has, how much does it make and what it does.

Some businesses that don’t need to pay VAT to decide to do so anyway because that way they get the benefits from that type of set up. This is mostly about getting refunds and getting the business to be more respectful.

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