Definition of Value added tax VAT

VAT is a tax on consumer expenditure and imports into the UK. 'Output' VAT on standard-rated supplies of goods and services is charged at each stage of the supply, and if the customers are registered for VAT and use the goods or services for business purposes, they reclaim the VAT on their purchases so that they have, in effect, only accounted for tax on the 'value added' by the business activities. Businesses are required to register for VAT if their taxable supplies at the end of any month exceed a given threshold in the previous 12 months, or will exceed that threshold in the next 30 days.

The total VAT cost is ultimately borne by the final consumer. Supplies made outside the UK are (broadly) outside the scope of UK VAT, although they may be liable to VAT in another country. The three rates of VAT applicable in the UK are the standard rate of 20 percent, the reduced rate of 5 percent and the zero rate, with some items being exempt from VAT. [1]