Who charges VAT and what VAT is charged on?

VAT is charged only by someone who is registered for VAT – usually, a business, but other organisations may be able to register as well.

They charge VAT on:

  • goods and services sold or otherwise supplied (e.g. barter) in the UK
  • goods, and some services, imported from places outside the EU
  • goods and services coming into the UK from other EU countries

You must register for VAT if your turnover for the previous 12 months is over a specific limited – £68,000 for 2009/10 or if you think your turnover may soon go over this limit. You may register voluntarily at any time. There are a few exemptions from registration.

For information on registering for VAT and when you do not need to register here.

How is VAT charged and accounted for?

For items which are standard-rated or reduced-rated for VAT, VAT is charged to the buyer (output tax) by the VAT registered seller. This VAT is reclaimed by the VAT registered buyer (input tax) after goods and services are purchased.

If you are registered for VAT, generally you charge VAT on your business sales and reclaim VAT on your business purchases. The difference between the VAT you charge and the VAT you are reclaiming is the amount of VAT you must pay to HMRC. If the value of the VAT you reclaim is more than the value of the VAT you charge, then HMRC pays you.

If you are not registered for VAT, you do not charge VAT on your sales. You still pay VAT on your purchases and you cannot reclaim this VAT.

You usually account for VAT on a quarterly basis by filling in a VAT return and sending it to HMRC. You can file online and pay by electronic means; or by post, on paper. At present, you can pay the VAT due on paper returns by cheque, but we would recommend that you pay by electronic means – there is a wide choice, including CHAPS, BACs, internet banking, telephone banking, Direct Debit and Bank Giro credit transfer Electronic payment is faster and more secure.

Remember that registration is compulsory when your ‘taxable turnover’ is more than the current threshold. Most VAT registration applications can be done online. All other VAT registration forms are available to download here.

There are simple payment schemes to help small businesses manage their VAT.

Annual Accounting Scheme

This scheme can help you to manage your cashflow and reduce you paperwork. You pay your VAT in instalments and submit one annual return along with a final balancing payment.

Cash Accounting Scheme

This scheme can help with your cashflow, as you only pay VAT when your customer has paid you. But you can only reclaim VAT on purchases when you have paid for them.

Flat Rate Scheme

This scheme is designed to make record keeping easier and help reduce the amount of time you spend accounting for VAT. You calculate your VAT by applying a flat rate percentage to your turnover.

Help with choosing the right scheme for you is available here.

You can file VAT Returns, pay by Direct Debit and give notification of changes to your registered business online.

For more information about VAT, including how you calculate taxable turnover, click here.