What is VAT?

Value Added Tax (VAT) in the European Union (EU) is a general, broadly based consumption tax that is assessed on the value added to goods and services. It applies to all goods and services that are bought and sold for consumption in the EU.
 

VAT is the following:

  • A general tax that applies to all commercial activities involving the production and distribution of goods and the provision of services. If the annual turnover of the business is less than the £83,000 threshold, the business does not have to charge VAT on their sales.

  • Charged as a percentage of price, which means that the actual tax burden is visible at each stage in the production and distribution chain.

How VAT works

VAT is charged on things like:

  • Business sales

  • Hiring or loaning goods to someone

  • Selling business assets

  • Commission

  • Items sold to staff

  • Business goods used for personal reasons

  • “Non-sales”

Together, these are known as taxable supplies.

VAT-registered businesses must charge VAT on their goods or services, and they may reclaim any VAT they have paid on business-related goods or services.

If you are a VAT-registered business, you must report to HMRC the amount of VAT you have charged and the amount you have paid. This is done through a VAT return, which is due every three months.

Responsibilities

You MUST account for VAT on the full value of what you sell, even if you:

  • Receive goods or services instead of money (for example, if you take something in part exchange)

  • Haven’t charged any VAT to the customer, whatever price you charge is treated as including VAT

If you have charged more VAT than you have paid, you will have to pay the difference to HMRC. If you have paid more VAT than you have charged, you can reclaim the difference.

Contact The VAT People

The VAT experts at The VAT People are able to offer bespoke support for businesses of all types. Contact us today by calling 0800 077 4604, or fill out an online enquiry form and we will be in touch.

Latest Testimonials

  • "Tamara was my first port of call when I needed a VAT expert. She is extremely knowledgeable, dependable, thorough and efficient. I would recommend her personally to any business needing this kind of assistance."

    Sarah Sillars OBE, CEO at Institute of Advanced Motorists, IAM - April
  • "The VAT People have been used by Cosmo Leisure for many years. We have found them to be very thorough and professional in all that they do.
    They have looked after some very complicated tax issues for us, always meeting deadlines at short notice and pursuing successful claims."

    Keith Lee, Cosmo Leisure Group - April
  • "Tamara has advised a number of our clients on VAT-related matters and her advice has always been timely and relevant. She is also willing to discuss matters on an informal basis and could not be more helpful. I recommend her and her firm whole-heartedly."

    Adam Hymes, Commercial Property Partner at Kuit Steinart Levy LLP - April
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