VAT and what you need to know

Value Added Tax (VAT) is a form of sales tax.

VAT is an indirect tax, levied on the end consumer. Although the subject of submitting it to the collecting agency, is the enterprise. Since VAT is intended to be a tax on consumption, exports are generally not subject to VAT, or otherwise VAT on exporters is refundable (by this definition, overseas consumers).

Currently, the UK government requires businesses with a turnover of more than £90,000 to register for VAT (from 01.04.2024). Businesses that are not yet VAT registered can choose to voluntarily register if they anticipate sales above £90,000 per year. Businesses can cancel their VAT registration if sales fall below £88,000 a year.

The current standard VAT payment rate is 20% (Standard Rate) on the majority of consumer goods. VAT businesses can get back the VAT amount they paid for their expenses. The VAT payment rate will vary depending on the type of item/service issued. For example, 0% for basic items such as vegetables, meat, fish, or VAT exemption for children's clothing, books, and newspapers. In addition, businesses can choose to pay VAT at a fixed rate lower than the standard rate of 20% (Flat Rate) if they do not want to refund VAT on the expenses they have paid. The Flat Rate will depend on the type of business, businesses that register for this rate will receive a 1% discount for the first year of VAT participation.

Many businesses mistakenly think that VAT is an expense of the business. However, to put it simply, this is a tax that the customer, or the final buyer, must pay. It is collected indirectly through businesses registering for tax. Therefore, these enterprises are responsible for paying this amount to the tax authorities. In this situation, the valuation of goods and services must be in line with the orientation of the enterprise, to avoid reducing the profit that the enterprise can receive from the beginning.