Value Added Tax

How VAT works

As a VAT-registered business, you should charge VAT on sales of most goods and services. There are three rates of VAT 

The standard VAT rate of 20%.

There is a reduced VAT rate of 5%.

Finally, there is a 0% rate for VAT.

As a VAT-registered business, you must charge VAT at the appropriate rate. When you buy from VAT-registered companies, you’ll be paying VAT on goods and services, whether you are VAT-registered or not.

VAT-registered businesses must pay the VAT they have collected from their customers to HM Revenue & Customs (HMRC). However, you can offset any VAT you have paid on your purchases against this. Please note that some rules may restrict you to claim the VAT against your liability. If your businesses are not VAT-registered, you cannot reclaim any VAT they have paid on their purchases.

VAT registration, records and returns

You should register for VAT if your VAT-taxable turnover exceeds the VAT threshold of £85,000 in 12 months or if you expect your turnover to exceed the threshold in the next 30 days alone. You may also choose to register voluntarily in certain circumstances as it may be beneficial.

You must keep proper VAT records and issue VAT invoices to your customers. You also need to prepare and submit VAT returns, and pay VAT you owe to HMRC.