What is UK Value Added Tax? (VAT)

What is UK Value Added Tax? (VAT) UK VAT is similar to a US sales tax in that it is levied on sales (outputs). UK VAT suffered on purchases and expenses (inputs) is set off against output tax and only the net amount is paid to the government (i.e. tax on the value added). A trading entity must register if its turnover is expected to be more than £77,000p.a. In a start up situation, or when trading as a branch operation and carrying out marketing activities only, there may be expenses but no sales. In this case (provided the company is VAT registered) the input tax can be reclaimed from the government. The standard rate of VAT is currently 20% (rose on 4 January 2011 from 17.5%) so the additional cost (if not reclaimed) can be significant.

A brief and simple guide to UK VAT has been compiled to help further questions.

We have also put together an infographic that shows in illustration What UK VAT is.