Value Added Tax (VAT) is a form of consumption tax that's charged on more or less to all goods and services that VAT-registered businesses provide in the UK. It is also charged on goods and some services that are brought into the UK from other European Union (EU) countries or countries outside the EU.
A business must register for VAT if the turnover for the previous 12 months has gone over the 'VAT threshold' (currently £82,000). If your turnover does not exceed the current VAT threshold, you can still register for VAT voluntarily.
VAT-registered businesses charge VAT when they provide goods and services to either business or to a non-business customer. When VAT-registered businesses buy goods or services they can generally reclaim the VAT on their expenses. If you're not VAT-registered then you can't reclaim the VAT you've paid on your purchases.
When a UK vat-registered company do sales with other EU countries, you should not charge vat if the customer has an EU Vat number, but you need to declare this on EU sales List. Any customers who do not have EU Vat number, you should charge vat on the invoices and you need to pay this vat to HMRC when you do Vat returns.
Every VAT-registered companies must submit VAT Return (usually every 3 months) and ensure that payment of the VAT due has cleared to HMRC.
There are three rates of VAT, depending on the goods or services the business provides: standard - 20 %, reduced - 5 % and zero - 0 %. There are also some items that are exempt from VAT or outside the UK VAT system altogether.
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