What’s the meaning of VAT number?

A VAT number, also known as a Value Added Tax Identification Number, is a unique number that identifies a business registered for VAT or GST (Goods and Services Tax). It allows a business to charge, collect and reclaim VAT on goods and services provided. VAT numbers are assigned by HMRC in the UK or revenue/tax authorities in other countries when a business registers for VAT.

What is VAT?

VAT (Value Added Tax) is a tax on the consumption of goods and services in the UK and other countries. It is charged as a percentage of the sale price of taxable goods and services.

VAT is ultimately paid by the consumer and collected on behalf of HMRC at each stage of production and distribution. However, it is businesses that are responsible for charging, collecting and remitting the VAT to tax authorities.

In the UK, the standard VAT rate is currently 20%. There are also reduced VAT rates of 5% (for some goods and services like domestic energy supplies) and 0% (for exempted supplies like most food and children’s clothing).

Why do businesses need a VAT number?

There are several reasons why a VAT registered business needs a unique VAT number:

• To charge VAT on taxable goods and services provided to customers
• To reclaim VAT paid on business purchases
• For accounting and tax purposes
• To prove the business is VAT registered
• To comply with VAT reporting obligations

Without a VAT number, a business cannot charge or claim back VAT. It also cannot fulfil VAT reporting and compliance requirements mandated by HMRC and other tax authorities.

Who needs a VAT number?

Any UK business that has VAT taxable turnover over the VAT registration threshold is legally required to register for VAT and obtain a unique VAT number. The current VAT threshold is £85,000 for the previous 12 months or the next 30 days.

The following businesses must register for VAT when turnover exceeds the threshold:

• Sole traders
• Partnerships
• Companies
• Clubs and associations
• Charities and not-for-profit entities
• Non-resident businesses trading in the UK

In addition, businesses can voluntarily register for VAT even if below the threshold to reclaim input VAT. Some businesses also have to register because they provide VAT exempt supplies like education, health and welfare.

How to get a VAT number

Applying for a new VAT number with HMRC is a straightforward process:

1. Determine if VAT registration is required based on taxable turnover
2. Collect information needed for the application like business address, business activities, accounting periods, bank details etc.
3. Apply for VAT registration with HMRC online, by phone or by post. HMRC will ask questions to determine VAT eligibility.
4. HMRC will send a VAT Registration Certificate with the new VAT number if application is approved. This usually takes around 5 working days.
5. Start using the VAT number on sales invoices from the effective date of registration

The VAT number must be displayed on all VAT invoices and receipts relating to VAT taxable sales made by the business.

What does a VAT number look like?

A UK VAT number is typically displayed in one of these formats:

• GB999 9999 99
• GB 999 9999 99
• GB999 999999
• GB 999 999999

It is made up of:

• The 2 letter ISO country code GB for the United Kingdom
• 999 – block of numbers between 1 and 999
• Up to 7 digits between 0-9

The above formats include spaces or hyphens to break up the number. However, HMRC states the spaces and hyphens don’t form part of the actual number.

VAT numbers in other EU countries look similar except the country code will be different e.g. IE for Ireland, FR for France, DE for Germany.

Example VAT number

Here is an example of a valid UK VAT number with the common format:

GB 243 2423 35

This breaks down as:

• GB – Country code for UK
• 243 – Block between 1-999
• 2423 – 4 digit block
• 35 – 2 digit block

How to validate a VAT number

It is important for UK businesses to validate the VAT numbers provided by suppliers and customers. This helps prevent VAT fraud.

To validate a UK VAT number:

1. Check the format – Removes spaces and hyphens
2. Check the number against the official HMRC VAT number checker
3. Perform a VIES VAT number validation check if dealing with an EU supplier or customer
4. Confirm name and address match the business
5. Request a VAT registration certificate from high value customers

Invalid VAT numbers are grounds for rejecting a transaction due to potential fraud.

How long is a VAT number valid?

A VAT number remains valid until:

• The business chooses to voluntarily deregister from VAT
• HMRC cancels VAT registration due to business closure, insolvency etc.
• HMRC deregisters the business for failing to comply with VAT rules

As long as the business remains VAT registered, the same VAT number will stay with the company. It does not have an expiry date.

If a business closes and reopens, it will be issued a new VAT number upon re-registration.

Using the VAT number for VAT reporting

Once registered, a business must follow VAT reporting rules including:

• Issuing VAT invoices for all taxable sales showing VAT charged
• Producing EC Sales Lists detailing VAT on sales to EU countries (if applicable)
• Keeping detailed business records of sales and purchases
• Submitting regular VAT returns and paying VAT due to HMRC
• Being subject to HMRC VAT inspections and audits

The VAT number plays a crucial role in accounting for VAT and demonstrating VAT compliance.

VAT invoices

VAT invoices issued by a registered business must show:

• An invoice number
• Date of supply
• Customer name and address
• Supplier name, address and VAT number
• Description of goods/services supplied
• Amount payable excluding VAT
• Applicable VAT rates
• Total VAT charged
• Invoice total

This information is needed for the supplier, customer and HMRC to account for VAT on transactions.

VAT reporting periods

Businesses must submit VAT returns to HMRC for set reporting periods using the VAT number. Reporting periods depend on annual turnover:

On the VAT return, output tax charged to customers is offset against input VAT incurred on purchases. The difference is paid to HMRC if VAT collected exceeds VAT credits. A refund is received if input VAT exceeds output VAT.

Penalties

Businesses that fail to comply with VAT reporting rules face financial penalties and other sanctions including:

• Late registration and late filing penalties
• Penalties for late VAT payment
• Surcharges for multiple late returns or payments
• Penalties for submitting incorrect or fraudulent VAT information

Having a VAT number comes with legal responsibilities for VAT compliance. Failure to fulfil these can lead to substantial penalties based on the VAT number.

How to cancel or change a VAT number

There are specific circumstances where a business must cancel or change their VAT number registration with HMRC:

Business closure

If a business permanently stops trading, it must deregister for VAT to cancel the VAT number. HMRC must be notified within 30 days of closure. The business will be liable for all VAT due up to the deregistration date.

Voluntary deregistration

A business can choose to deregister if annual turnover falls below the VAT threshold. However, it must have been VAT registered for at least 12 months before deregistering voluntarily. Exceptions can be made if turnover suddenly drops due to exceptional circumstances.

Change of business details

If the business changes its name, address or contact details, HMRC must be notified to update details linked to the VAT number record.

Insolvency or administration

If a company goes into administration or liquidation, the VAT registration ends automatically. However, the appointed administrator or liquidator may need to reregister for VAT if continuing to operate the business.

Penalties and compliance

HMRC can deregister a business for VAT as a penalty for serious breaches like repeated late filing, failing to pay VAT or providing false information. Criminal prosecution may also follow in fraud cases.

Conclusion

A VAT number is a key identifier for dealing with HMRC and managing VAT obligations. All VAT registered businesses must display the VAT number on invoices and regularly report VAT collected and reclaimed using this unique reference number. It links the business to its VAT liabilities and compliance record held by HMRC. Maintaining an accurate VAT number registration and fulfilling VAT reporting requirements is crucial for any business charging and reclaiming VAT.