Value Added Tax

Value added tax or VAT as it is most commonly known is an extra tax that is payable when you buy certain goods – it is very similar to the sales tax that is levied in the United States. If you are in business and you take over £25,000 a year then you must register for VAT purposes, if you earn less than that then you don’t have to pay VAT, but neither can you claim it.

Certain items do not have value added tax; these include cakes, but not biscuits, children’s clothing but not adults and postage stamps. VAT has to be returned every quarter by businesses and that involves listing all of your invoices and credits and totalling up the amount of VAT. You also have to total up the items where you yourself have claimed VAT on goods or services and then take whatever is the lower total from the higher one. The amount that is left over after the calculation is the amount that is paid to customs and excise. If you have paid out more in VAT than you have taken back, then you are entitled to a rebate, in the same way as you would be if you had been overtaxed on your income.