The basics of VAT
Value Added Tax (VAT) is a widely used term in the business world, but a few people understand how it works or where it is applicable. In simple terms, VAT is a consumption tax levied on the sales of products or services. It is termed as an indirect tax since businesses collect it on behalf of the government. Since its inception in 1973, VAT rates have changed over the years. Fair to say it’s either gone higher or lower depending on governments priorities, laws and changes in the economy.
As a business owner, you need to include VAT in the price of your goods or services, keep proper VAT records and pay the collected VAT to HMRC. The prices marked on items in-stores are VAT inclusive. However, some goods and services for instance dental services are exempted from VAT, while other activities are outside the VAT scope, e.g. hobbies. If you live outside the UK or you are a visitor in the UK, you may get a reimbursement of VAT paid on goods and services.