What falls outside the scope of vat for small businesses?

Value Added Tax (also known as VAT) is levied on most goods and services provided by registered businesses in the UK. If you have a small business in the UK, you are either required to register for VAT because your turnover is in excess of £85 000 per annum, or you can register for VAT voluntarily if your turnover is below the threshold.

You can charge VAT – and, as a result, reclaim VAT from the HMRC – on most of the goods or services your small business provides. However, there are some goods and services that are completely outside the scope of VAT altogether. Out of scope goods and services are things that you cannot charge VAT for and you cannot reclaim VAT for, at the end of the year.

To make life a little easier for you, we have put together the ultimate list of what falls outside the scope of VAT for small businesses in the UK. Below are the goods and services that you cannot charge VAT for or reclaim VAT for.

  • Goods or services you buy and use outside of the EU.
  • Statutory fees like the London congestion charge.
  • Goods you sell as part of a hobby.
  • Donations to charity if the donation is given without receiving anything in return.
  • Wages and salaries.
  • PAYE and National Insurance contributions
  • Money taken out of your small business by you.
  • Loans, dividends, and monetary gifts.
  • Insurance claims.
  • Stock Exchange dealings, unless you are a financial institution.
  • MOT certificates.
  • Motor vehicle licence duty.
  • Local authority rates.
  • Income which is outside the scope of VAT because it is no consideration for a supply.
  • Tolls for bridges, tunnels and roads operated by public authorities.
  • Low cost welfare services provided by charities.

It is important to note that different rules apply for Corporation Tax and self-employed sole trader income tax.

Being registered for VAT as a small business in the UK can have great implications for your business, particularly the fact that you can reclaim VAT at the end of the year, if your VAT records are accurate and up to date. However, it is important to know when you can’t charge VAT as well as what you cannot reclaim VAT for when running your business. We hope this list has been helpful!