introduction to value added tax

Value Added Tax (VAT)

a tax imposed on the sale of goods and services

indirect tax

a tax which is imposed indirectly on consumers by taxing their spending

HMRC

the government body that regulates and administers the collection of taxes - including VAT

VAT Guide 700

the online guide published by HMRC which explains the workings of VAT

taxable person

a business that is registered for VAT - the taxable person can be a sole trader, a partnership, a limited company, a group of companies, a club or association, or a charity

output tax

VAT on sales of goods and services

input tax

VAT on purchases of goods and services

VAT Return

the HMRC VAT form that calculates VAT to be paid or refunded by deducting input tax from output tax

standard rate

the percentage rate at which VAT is charged on most goods and services, currently 20%

reduced rate

a reduced rate allowed for socially beneficial items such as domestic fuel, currently 5%

zero-rated supplies

supplies which are liable to VAT, but at 0% VAT rate

exempt supplies

supplies that are not liable to VAT at all

VAT registration

the formal procedure by which a business registers with HMRC and will then charge VAT and account for VAT due to HMRC

VAT threshold

an amount set by HMRC for annual taxable sales of a business, above which the business must register for VAT (£90,000 in Finance Act 2024)

voluntary registration

VAT registration of a business with annual turnover below the VAT threshold

deregistration

where the annual sales of a VAT-registered business fall below a certain threshold (£88,000 in Finance Act 2024) and the business applies to HMRC to cease to be VAT-registered and no longer charge VAT

VAT visits and inspections

control visits to VAT-registered businesses by HMRC VAT officers who check that VAT is being charged and accounted for correctly