Value Added Tax (VAT)
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.
VAT-registered businesses add VAT to the sale price of most goods and services they provide.
Filling in your VAT Return
If you're VAT-registered you'll have to submit a VAT Return at regular intervals - usually quarterly - the return shows:
- the VAT you've charged on your sales to your customers in the period - known as Output Tax
- the VAT you've paid on your purchases - known as Input Tax
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 and 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.
Examples of reduced-rated items
Some examples of goods and services that may be reduced-rated, depending on the product itself and the circumstances of the sale:
- domestic fuel and power
- installing energy-saving materials
- sanitary hygiene products
- children's car seats
Examples of zero-rated items
Some examples of goods and services that may be zero-rated, depending on the product itself and the circumstances of the sale are:
- food - but not meals in restaurants or hot takeaways
- books and newspapers
- children's clothes and shoes
- public transport
