VAT is a tax that's charged on most business transactions in the UK through additions to the price those businesses charge when they provide goods and services.
Generally, when businesses charge VAT to others (output tax) they generally reclaim the VAT they suffer themselves (input tax) when buying goods and services for their business.
Not all businesses have to account for VAT and the major exemption is for those activities which are small-scale. You do not have to register for VAT if:
- your turnover for the previous 12 months is under the 'VAT threshold' (currently £73,000); and
- you do not think your turnover will go over that limit any time soon.
In some cases, there can be an advantage in choosing to register for VAT, even if you don't have to.
There are three rates of VAT, depending on the goods or services the business provides. The rates are:
- standard - 20%
- reduced - 5%
- zero – 0%
Where to go for VAT information
There is good VAT information on a range of government websites and we do not intend to duplicate that effort. However, for those on low incomes and who want to learn about VAT and how to do it for themselves we suggest that you start with the following explanations where HMRC have contributed to the Business Link website:
Business Link – starting up
Business Link – more detail
Business Link – even more detail
LITRG has had a particular concern in the way that VAT impacts upon people with disabilities. We wrote a comprehensive report calling for HMRC to review the VAT reliefs given to disabled people. (VAT and disabled people - the case for removing the barriers). Change has been disappointingly slow.
