How VAT Works
You can only charge VAT if your business is registered for VAT.
VAT is charged on things like:
- business sales - for example when you sell goods and services
- hiring or loaning goods to someone
- selling business assets
- items sold to staff - for example canteen meals
- business goods used for personal reasons
- ‘non-sales’ like bartering, part-exchange and gifts
These are known as ‘taxable supplies’. There are different rules for charities.
- must charge VAT on their goods or services
- may reclaim any VAT they’ve paid on business-related goods or services
If you are a VAT-registered business you must report to HM Revenue and Customs (HMRC) the amount of VAT you have charged and the amount of VAT you have paid. This is done through your VAT Return which is usually due every 3 months.
You may want to appoint an agent to deal with HMRC on your behalf.
You must account for VAT on the full value of what you sell, even if you:
- receive goods or services instead of money (for example if you take something in part-exchange)
- haven not charged any VAT to the customer - whatever price you charge is treated as including VAT
If you have charged more VAT than you have paid, you have to pay the difference to HMRC. If you have paid more VAT than you have charged, you can reclaim the difference from HMRC.
- VAT rates
- What you must do when charging VAT
- VAT-inclusive and exclusive prices
- When not to charge VAT
- Charging VAT to charities
- Returned goods
- Discounts and free gifts
- Providing services to EU businesses