Value Added Tax, or VAT, is a tax charged on most goods and services provided by VAT-registered businesses in the UK. VAT is charged when a registered business sells to either another business or to a non-business customer.
When registered businesses buy goods or services they can generally reclaim the VAT they’ve paid. There are currently three rates of VAT, depending on the goods or services the business provides.
| Rates | Payable on |
|---|---|
| 0% | Books, newspapers, children’s clothes, most food items |
| 5% | Domestic gas and electricity/energy-saving materials |
| 17.5% | Standard rate for most items – set to rise to 20% from 4 January 2011 |
From April 2010, traders must register for VAT if their annual sales exceed £70,000 for the previous 12 months or expect to go over this level within the next 30 days.
From April 2010, traders whose sales fall below £68,000 may – but aren’t obliged to – deregister for VAT.
