Value Added Tax, to give VAT its full name, is an indirect tax, charged on the price of a product or service as it passes through its production, distribution or sale to the ultimate customer. Introduced in 1973, it provides HM Treasury with around 33% of its annual income.

VAT is charged on most good and services provided by registered businesses, although the rate charged may vary. As an indirect tax, the person who pays the tax to HMRC is not the consumer, but the supplier.

All businesses whose turnover exceeds the threshold must register for VAT, although it is possible to register before this point. Careful records should be kept both before and after registration to ensure that the need for registration isn’t missed, and from there that the usually quarterly Return submissions can be justified.

Once registered, a business must charge VAT at the appropriate rate on all of its sales, unless they are exempt supplies. Some goods and services may be changed at lower rates, known as either reduced or zero rates. The amounts charged to its customers by the business can be offset against VAT amount they themselves pay out, reducing the amount that is paid over to HMRC.

Non-payment of VAT is a criminal offence, whilst most other tax related fraud is classified as a civil issue. VAT evasion, avoidance and fraud costs HM Treasury billions of pounds every year.

We have not intended to explain VAT in full in this section of our Info Centre; it simply isn’t large enough! What we have tried to do is cover the latest news areas, and to answer the most popular questions that we’re asked. We’ll continue to add more content, but please contact us if you have specific questions.