Value Added Tax, or “VAT”, is a tax charged on most goods and services provided by VAT-registered businesses in the UK and also on those imported from countries outside the European Union (EU) and even some countries within the EU.
First introduced in 1973 in the UK, VAT soon became one of the largest revenue providers for the government. HM Revenue and Customs is the government body responsible for collecting and reimbursing VAT to VAT-registered businesses in the UK.
Almost any business in the UK can register for VAT. Registration can be voluntary for businesses that are within the £79,000 threshold for annual turnover or compulsory in the case of businesses that exceed that limit (this applies to fiscal year 2013/14 and may change in subsequent years).
Once registered, the trading party will receive a unique VAT number which must be present on any invoice which includes VAT.
VAT is calculated on net price using three different rates, depending on the nature of goods and services being sold:
• Standard rate: 20% (Charged on most goods and services in the UK)
• Reduced rate: 5% (on things such as domestic fuel and power, installation of energy-saving materials, sanitary hygiene products, children’s car seats)
• Zero rate: 0% (on things such as food items (but not meals in restaurants or takeaways), books and newspapers, children’s clothes and shoes, public transport)
After becoming VAT-registered, the business has to store and maintain all the transaction records for VAT returns which are submitted online quarterly, monthly or annually, depending on the scheme the business has chosen. The main purpose of a VAT return is to show how much VAT (output tax) was collected as well as paid out (input tax) by the business during the specified period. The output and input tax is then balanced out to arrive at the amount due to or claimable from HMRC.
Author: Anatoli Dantchenko (email: email@example.com)