In this article, we provide in-depth answers
to ten of the most common questions we regularly hear about VAT and how it works in different situations.
This article should not be considered financial advice, just general information. You should consult a tax professional to get advice specific to your situation.
VAT stands for Value-Added Tax. It is a
specific type of taxation payable on goods and services within the UK and
It is incorporated into the price of the goods
you pay, not added on as an extra charge. Though you may at times see it
delineated so you can see which part of the purchase price is VAT and which is
Tax and VAT are not interchangeable words for
the same thing.
VAT is one type of taxation, but tax is not synonymous with VAT.
It would be the same as asking if basketball
and sport are the same things. Basketball is a sport, yes, but there are many
different types of sport, basketball just being one of them.
When you look at your purchase receipt, in
many cases you will see a separate line item that indicates how
much of the overall price paid was the VAT proportion.
In some cases, this will not be specifically
identified and you will just need to accept that VAT has been included in the
If you are making a business purchase, often
this is not included in the price quotations you will receive and advertised
costs, but will be added to your final invoice.
If you are a small enterprise then you may not need to charge VAT. However, if
you do this neither will you be able to deduct the input VAT or quote it on
Ensure you receive the appropriate taxation
advice to navigate this.
If you are a consumer, there are some goods and services that have a ‘VAT Exempt’ taxation status, meaning you will not pay VAT on those purchases. The predominant goods and services that do not include VAT are medical goods and services, and also services provided by the post office, and many more.
VAT registration helps the overall record
keeping of relevant transactions and assists with relevant data collection.
If you have started a new business, but have not
provided goods or services yet, then having VAT registration will enable you to
consider claiming credit for VAT on purchases you have made before you started
It is important to register for VAT because
that money is never yours. You are just collecting it on behalf of the relevant
authorities. So registering for VAT make it much easier to calculate, measure,
and participate appropriately in this process.
Yes, petrol does include VAT of 25%.
This was added in 1990.
If you run an appropriate business then you
can request to reclaim it.
VAT on used vehicles depends on the way in
which you purchase your second-hand vehicle.
If you buy a car from a dealership, then you will pay VAT. There are two different ways the dealership will apply the VAT tax. They are not obliged to tell you which VAT calculation method they will use, but if you ask them, they should tell you. The two methods are the ‘second-hand margin scheme’ or the ‘VAT on selling price’ method. Most dealers will use the former, as it is more affordable.
If you buy a used vehicle privately then there
will not be any VAT on the sale.
GST and VAT are basically the same things,
though they operate slightly differently.
In principle, they are both levied on goods
and services, though they are applied at different rates. The GST tends to have
a lower rate of taxation. There are also different rules in terms of which is
included and excluded, and the rules around registration requirements.
If you operate a business in multiple jurisdictions, you can understand these two taxation types in the same way, but ensure you have a process in place to meet the different requirements of each.
VAT is managed in two monthly taxation
periods, thus there are six periods each year.
You must calculate and pay your VAT, including
all relevant paperwork, by the 19th day of the month following each VAT period.
Set the rate of taxation in the VAT calculator
based on the type of purchase being made.
If you have a price that you would like to add VAT to, then you can multiply that figure by 1.2.
It is recommended you use a specific VAT
calculator app that will guarantee you get the desired calculation and be able
to perform more flexible calculations across more VAT scenarios.
The above answers give you general information to help you understand the VAT system better, but please consult a tax professional to assist you to understand the specific VAT implications and possibilities in your particular scenario.