VAT stands for Value Added Tax, which is a tax charged on most goods and services within the UK. The current standard rate of VAT is 20%.
VAT registered companies must include VAT on the sale price of their products and services. These VAT-companies can also reclaim VAT payments made on their purchases, effectively nullifying VAT as a cost for them.
Conversely, non-VAT registered businesses do not charge VAT to their customers and cannot recoup any VAT on expenditure. Consequently, the burden of VAT falls on consumers or non-VAT registered enterprises, as they are unable to retrieve any VAT payments they've made.
By law, a business must register for VAT when its taxable turnover (total revenue, not profit) over the past 12 months exceeds the VAT registration threshold of £90,000 (for the 2024/25 tax year), or if it's expected to surpass this threshold within the next 30 days.
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