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VAT is a tax that's charged on most goods and services that VAT-registered businesses provide in the UK. It's also charged on goods and some services that are imported from countries outside the European Union (EU), and brought into the UK from other EU countries.
VAT is charged when a VAT-registered business sells to either another business or to a non-business customer.
When VAT-registered businesses buy goods or services they can generally reclaim the VAT they've paid.
There are three rates of VAT, depending on the goods or services the business provides. The rates are:
There are also some goods and services that are:
This guide explains the basics of how VAT works. It tells you where you can find more information and advice.
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VAT is a tax that's charged on most business transactions in the UK. Businesses add VAT to the price they charge when they provide goods and services to:
If you're a VAT-registered business, in most cases you:
If you're not VAT-registered then you can't reclaim the VAT you pay when you purchase goods and services.
VAT-registered businesses add VAT to the sale price of most goods and services they provide.
If you're a business and the goods or services you provide count as what's known as 'taxable supplies' (see 'What is VAT charged on' below) you'll have to register for VAT if either:
You can choose to register for VAT if you want, even if you don't have to.
If you're VAT-registered you'll have to charge VAT on any goods and services that you provide in the UK that are VAT taxable. You charge VAT on the full sale price, even if you accept goods in part exchange or through barter instead of money.
If you're VAT-registered the VAT you add to the sale price of your goods or services is called your 'output tax'. The VAT you pay when you buy goods and services for your business is called your 'input tax'.
If you're VAT-registered you'll have to submit a VAT Return at regular intervals - usually quarterly - the return shows:
If the amount of output tax is more than the input tax, then you send the difference to HM Revenue & Customs (HMRC) with your return.
If the input tax is more than your output tax, you claim the difference back from HMRC.
There are special schemes that some businesses can use to help them work out and pay their VAT.
There are different VAT rates, depending on the goods or services that are being provided. Currently there are three rates:
The standard rate of VAT is the default rate - this is the rate that's charged on most goods and services in the UK unless they're specifically identified as being reduced or zero-rated.
These are some examples of goods and services that may be reduced-rated, depending on the product itself and the circumstances of the sale:
This isn't a complete list of reduced-rated items and services.
These are examples of goods and services that may be zero-rated, depending on the product itself and the circumstances of the sale:
This isn't a full list of zero-rated items.
There are some items that aren't covered by VAT. These items are either:
Some items are exempt from VAT because the law says they mustn't have any VAT charged on them. Items that are exempt include the following:
Selling, leasing and letting commercial land and buildings are also exempt from VAT. But you can choose - or 'opt' - to give up the right to the exemption and to charge VAT at the standard rate instead. This allows you to reclaim input tax when otherwise you wouldn't be able to (see 'The difference between exempt and zero-rated' below).
There are some things that aren't in the UK VAT system at all - they're outside the scope of VAT. They are not taxable supplies and no VAT is charged on them. Items that are outside the scope of VAT include:
If you sell zero-rated goods or services they count as taxable supplies, but you don't add any VAT to your selling price because the VAT rate is 0 per cent.
If you sell goods or services that are exempt, you don't charge any VAT and they're not taxable supplies. This means that you won't normally be able to reclaim any of the VAT on your expenses.
Generally you can't register for VAT or reclaim the VAT on your purchases if you sell only exempt goods or services. If you sell some exempt goods or services you may not be able to reclaim the VAT on all of your purchases.
If you buy and sell only - or mainly - zero-rated goods or services you can apply to HMRC to be exempt from registering for VAT. This could make sense if you pay little or no VAT on your purchases.
There is a range of general guidance on VAT in this section of the website including:
You can watch online seminars (webinars) that cover VAT awareness and the basics of VAT. There are two types of presentation each lasting 30 minutes. The webinars can be viewed either:
If you can't find the answer to your question on the HMRC website, the easiest way is to ring the VAT Helpline where you can get most of your VAT questions answered.
Before you ring, make sure you have your VAT registration number and postcode to hand. If you're not VAT-registered, you'll need your postcode - it's necessary so HMRC can keep a record of your call.
It's not always possible to answer your question straightaway over the telephone because the helpline adviser may need to research the answer. If this happens, they'll take your details and call you back as soon as possible. The helpline adviser will tell you how long it will take.
In some cases HMRC might need you to write in, especially if they need to look at your paperwork. The helpline adviser will tell you if this needs to happen and where you need to write to.
Business Advice Open Days are popular events designed especially for small and medium-sized businesses and they take place in different locations around the UK. It's not just HMRC at these events - there are other government departments as well, like the Department for Work and Pensions, the Health and Safety Executive, the Intellectual Property Office and Business Link.
It's an opportunity to talk to experts and get all your questions answered in one place on the same day. You can:
These are some plain English definitions of common VAT terms that HMRC uses: