Value added tax

What is value added tax?

VAT is a tax on consumer spending, administered entirely by firms who collect VAT from their customers and who hand it over (less the tax they pay to their suppliers) to Customs and Excise.

Most goods and services attract VAT, though a few, such as education and training, are exempt from VAT. There are currently three rates:

• Standard (17.5%)
• Reduced (5%)
• Zero rated (0%)

Once your turnover exceeds, or you expect it to exceed, a threshold (currently £60,000) then you must register. If your turnover is below the threshold, you may register voluntarily. In general, if most of your sales are to other businesses, then it is advantageous to register.

If you provide exempt supplies, then you are unable to recover the VAT that you pay to your suppliers; if you provide zero-rated supplies then you can recover the input tax.