The Basic Principles Of Vat
By Benedict Rohan
VAT (Value Added Tax) is a sales tax, levied on the expenditure of
consumer goods and services and business transactions, which is paid by
the consumer at the point of purchase and collected by Her Majesty’s
Revenue and Customs (HMRC). First introduced to the UK in 1973, it is
now a major source of revenue for the government.

There are four different categories for VAT: standard rate (17.5%) for
goods and services considered to be ‘luxury’ items, reduced rate (5%)
for goods and services considered to be socially or economically
important, zero rate for essential goods and services and exempt rate
for necessities. Some examples of zero-rated or exempt goods and
services are: children’s clothes, food, public transport, newspapers,
medicines, books, insurance, postal services and funerals.

For individual consumers, it’s a straightforward tax, paid at the point
of purchase. For businesses, though, it’s a pretty complex system.
However, put in simple terms, companies pay VAT on their purchases
(known as input tax) and charge VAT on their sales (known as output
tax).

All companies with an annual turnover of over £60,000 must be VAT
registered with HMRC, and must pay VAT on everything they buy and sell.
When your company is VAT registered, you must submit VAT returns to
HMRC on a quarterly basis to declare how much VAT you have charged your
customers and to recover VAT for goods or services you’ve purchased.
You’ll also need to set up a system of VAT invoicing for your sales,
and all paperwork relating to VAT must

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