What is VAT?

Definition of VAT

VAT is short for ‘Value Added Tax’. It’s a tax on the sale of most goods and services.

HMRC collects VAT revenues through businesses who are registered for VAT.

If you’d like to know more about Value Added Tax, our dedicated introduction to VAT guide has everything you need.

VAT Registration

Only businesses can be registered for VAT; individual consumers can’t.

If you are registered for VAT, you must charge VAT to your customers on applicable sales. You may also be able to reclaim VAT that you pay on your purchases. You then pay the VAT you’ve charged to your customers, less any VAT you can reclaim, over to HMRC. In effect, you’re acting as an unpaid tax collector.

Not all businesses have to register for VAT. If your annual VATable sales are below the limit set by HMRC, you can choose to register, in order to reclaim VAT on your costs. If your customers are the general public, or small businesses that are not themselves registered for VAT, then if you register, they will see that as a price increase, because they won’t be registered for VAT and so can’t reclaim the VAT you charge them.

Want to know more? Our handy guide to VAT registration has everything you need to know about how and when to register.

Submitting your VAT return online

FreeAgent automatically generates your VAT returns, reminds you when payment is due and then lets you submit your VAT returns online directly to HMRC.

VAT Calculator

Use our VAT calculator to add or remove VAT at the standard or reduced rate.