VAT is a tax that is charged on most business transactions in the UK. Businesses add VAT to the price they charge when they provide goods and services. A business must register for VAT once the turnover for the previous 12 months has gone over a specific limit – called the ‘VAT threshold’. Under this threshold a business can voluntarily register for VAT.

For VAT-registered businesses, VAT is charged on any goods and services provided in the UK that are VAT taxable. VAT is charged on the full sale price, even if the goods are accepted in part exchange or through barter instead of money.

The VAT charged on the sale price of goods or services is called ‘output tax’.

The VAT paid when a business purchases goods or services is called ‘input tax’.

VAT-registered businesses submit a VAT Return at regular intervals – usually quarterly – and send it to HM Revenue & Customs (HMRC). If the amount of output tax is more than the input tax, then the difference is paid to HMRC with the return. If the input tax is more than your output tax, the difference is claimed back from HMRC.

Non-VAT-registered businesses cannot reclaim VAT paid on purchased goods or services.