VAT (Value Added Tax) is added onto the price of most goods and services, both from the UK and abroad.
It is an indirect tax, meaning those who bear the burden are not the ones who pay it directly to the government. VAT-registered businesses add it to the price of their goods and services (unless those goods or services are exempt – see ‘VAT rates’ in the box-out in the right-hand column) and then pass the revenue onto to the state.
If they have registered for it businesses can recoup VAT paid on most goods and services used for business purposes. End consumers, who ultimately pay the tax, are the only ones who cannot recoup VAT on their purchases.
Some businesses are legally obliged to register for VAT, while others choose to register for VAT voluntarily.
Some businesses are legally obliged to register for VAT, while others choose to register for VAT voluntarily
But why would a business register for VAT – a tax! – VOLUNTARILY?!
- You can charge VAT on your sales and get a VAT refund if you sell zero-rated items and buy standard-rated items.
- You can still claim VAT back on your purchases if you fail to sell anything during a VAT accounting period.
- You can charge VAT on your sales and have the use of that money for a period before you pay it to HMRC.
You MUST do VAT registration if… the value of your taxable supplies over the previous 12 months exceeds £67k, the VAT registration limit, or if they will exceed this threshold within the next 30 days. Taxable supplies are those goods and services the business supplies that are subject to VAT at any rate.
You can do VAT registration on a VOLUNTARY basis if… the value of your taxable supplies is below the VAT registration limit of £67k.
You MUST do VAT registration if… you are a supplier in another EC country and the value of your distance sales in the UK exceeds the distance-selling threshold of £70k in a calendar year. A distance sale is when a taxable person in one EC country sells goods to a customer in another EC member state who isn’t registered for VAT or liable to be registered for VAT.
You can do VAT registration on a VOLUNTARY basis if… you are a supplier in another EC country and the value of your distance sales is below the distance-selling threshold of £70k.
You MUST do VAT registration if… the value of your acquisitions from other EC countries in the calendar year, or part year, from 1 January, has exceeded the registration threshold of £67k, or if the value of your acquisitions over the next 30 days alone is expected to exceed this threshold. Acquisitions include goods bought from a VAT-registered supplier in another EC country.
You can do VAT registration on a VOLUNTARY basis if… the value of your acquisitions from other EC countries in the calendar year, or part year, is below the registration threshold of £67k.
You MUST do VAT registration if… you dispose, or intend to dispose, of assets on which you (or a predecessor) recovered, or intend to recover, VAT under the 8th or 13th directive fund arrangements.
You may apply to be EXEMPT from VAT registration if… your products are primarily zero-rated, or your turnover temporarily goes over the registration limit of £67k but you can show that future turnover will be below the deregistration limit of £65k.
VAT rates
At present the standard rate of VAT is set at 17.5% and this is applied to the majority of goods and services.
The reduced rate, 5%, applies to goods like fuel and power used in the home and by charities, and children’s car seats and other goods and services which are essential or beneficial to the public good.
The third and final rate is 0% and this applies to food, medicines, books, newspapers, children’s clothes, public transport services and other goods and services which are essential or beneficial to the public good.
