Industry sector: Retail and wholesale

Milk round: VAT

Milk rounds and VAT

The goods and services supplied by any business will be either taxable or exempt for VAT purposes.

Taxable supplies

If they are taxable you must register for VAT once your sales have reached the current VAT registration threshold. You will have to charge VAT on some of the goods you sell - this is known as 'output tax'. You will be able to reclaim any VAT you pay on purchases - this is known as 'input tax'.

There are two main rates of VAT:

  • standard rate
  • zero rate

In addition some goods such as fuel for domestic use are subject to a reduced rate. If your customers give you a tip - for example, at Christmas - this is outside the scope of VAT completely.

Every quarter you will pay HM Revenue & Customs (HMRC) the difference between:

  • the output tax you have charged, and
  • the input tax you have paid on your purchases

Nearly all businesses have to pay their VAT bill electronically - for example by direct debit or online banking. HMRC allows you some time at the end of each quarter before you have to pay the VAT due. So, for example, the VAT due on sales made in months one, two and three would be paid at the end of month four. Your VAT return will show your payment deadline date.

Businesses that are having trouble making their VAT payments, or are worried that future payments will cause them problems, can ask for help from the HMRC Business Payment Support Service. If your business needs this financial assistance to tide it over, HMRC will look at your situation and discuss temporary options that could help out. These could include letting you make payments over a longer period and waiving late payment surcharges. To discuss payment problems with HMRC you can call the Business Payment Support Service Helpline on 0300 200 3835.

Standard or zero rated

You may sell a mixture of standard rated and zero rated things. Standard rated goods have the standard rate of VAT added to the selling price while zero rated goods do not have any VAT added to the selling price.

Zero rated items include most of the goods you will sell, such as:

  • milk and dairy products
  • eggs, potatoes, bread and other food items

However, you may sell some standard rated items such as:

  • snacks, soft drinks
  • confectionery
  • pet foods
  • some garden products

and more. Your suppliers will be able to give you some guidance on this - many invoices show alongside the item whether it is standard or zero rated.

Contact the VAT Helpline on 0300 200 3700 which will be able to give you further guidance. You can download two helpful publications from the website. These are:

  • VAT Notice 700/1, Should I be Registered for VAT?
  • VAT Notice 701/14, Food products

Making Tax Digital (MTD) for VAT

Under HMRC's Making Tax Digital initiative, VAT-registered businesses with taxable turnover above the VAT threshold must keep records digitally and use special software to submit their VAT returns. You can find out more about MTD on the website.

Alternative flat rate scheme

You might be interested in an optional flat rate scheme (FRS) for eligible small businesses. Under this scheme you continue to issue tax invoices to VAT registered customers, but the VAT payable every quarter is calculated as a percentage of your VAT-inclusive turnover. You apply the appropriate flat rate percentage for your type of business. However, this scheme cannot be used with the retail schemes, the margin scheme for secondhand goods or the cash accounting scheme. You can find full details of the FRS, who can use it, and the flat rate percentages in VAT Notice 733, Flat rate scheme for small businesses. It will help you to decide whether or not the scheme is suitable for you.