Value added tax (VAT) is charged on a range of products and services which you buy. In fact, VAT is payable on any goods bought within the European Union (EU) and since 4th January 2011 VAT is chargeable at a standard rate of 20%.
When do you have to pay VAT?
If VAT is payable on goods, such as those on a shop, it is usually included in the price you see. Similarly most retail prices on bills and receipts include VAT although it might not be shown separately. However VAT registered suppliers such as builders, decorators, plumbers etc. have to show VAT separately on their receipts, if it is chargeable.
Not all businesses or suppliers are required to be VAT registered. Any trader whose turnover exceeds £77,000 must register for VAT. Those with lower turnovers do not have to. But it's been reported that a number of businesses and suppliers, such as tradesman, are charging VAT on their invoices even though they are not VAT registered. In these circumstances most customers will take it at face value that their builder, for example, is genuinely VAT registered and pay the bill in full. The customer ends up paying an additional 20% on their bill which the supplier simply pockets. It's what the builder would call 'a nice little earner'.
How to avoid being a victim
Now most businesses operate within the law and it is a minority that are committing this type of fraud. But there is a quick and simple way to avoid becoming a victim of this type of fraud. If a business claims to be charging VAT for the goods or services they provide then
- Ask for a VAT receipt or invoice – they have to legally provide you with this if they are charging you VAT. If they can’t then they are breaking the law.
- Make a note of the VAT number - The invoice should contain details of it.
- Check that the VAT number is genuine by checking it online - It will take just a few second and will show if the VAT number is genuine and registered to the supplier in question.
What should you do if you suspect VAT fraud?
If you suspect that a firm is avoiding paying VAT, or charging VAT when they aren’t VAT registered, you should report them to the Customs Hotline, telephone 0800 595 000. Don't worry; you won't have to provide any personal details so you can remain anonymous.