Value Added Tax
A consumption tax charged at each stage of production and distribution on goods and services, with the final burden falling on the end consumer. VAT-registered businesses collect VAT from customers (output tax) and reclaim VAT paid on their own purchases (input tax), remitting only the net difference to HMRC. The main rates are standard (20%), reduced (5%), and zero (0%).
Related Terms
Standard Rate VAT
The main VAT rate of 20% applied to most goods and services sold in the UK by VAT-registered businesses.
Reduced Rate VAT
A 5% VAT rate applied to certain goods and services deemed essential or beneficial, including domestic fuel and power, children's car seats, and some energy-saving materials.
Zero Rate VAT
A 0% VAT rate applied to certain essential goods and services, including most food, children's clothing, books, and prescribed medicines.
VAT Registration Threshold
The level of taxable turnover above which businesses must register for VAT, currently £90,000 per rolling 12-month period.
VAT Return
A periodic report that VAT-registered businesses must submit to HMRC, typically quarterly, showing the VAT they have charged customers and the VAT they have paid on purchases.
Flat Rate Scheme
A simplified VAT accounting method for small businesses with an annual turnover below £150,000, where you pay a fixed percentage of your gross turnover to HMRC instead of accounting for input and output VAT separately.
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