Value Added Tax is levied on most business transactions, goods and some services.
VAT does not apply to services such as insurance, training, loans and some types of education; these are considered 'exempt'.
There are currently 3 different types of VAT in Great Britain - 15% (reduced from 17.
5%), the 'reduced' 5% rate, and the 'zero' rate, which, guess what, is 0%.
Note - the current 15% rate will be increased back to 17.
5% after 31st December 2009.
If you either own a business, or work for yourself, you will have to register for VAT if your taxable turnover reaches £67,000, if you take over a business as a going concern, or if you purchase goods from anywhere else in the EU.
Good and services that are liable to VAT are known as 'taxable supplies'.
The amount you will owe to Revenue and Customs is the different between your input and output tax.
Input tax is the VAT charged by your suppliers, and your Output tax is the VAT you charge to your VAT registered customers.
If your Input tax is more than your Output tax, then you may be entitled to a refund.
Is It Worth Registering? If your taxable turnover is over £67,000, then you have to register for VAT.
If you do not, then you will be liable for a fine.
If your turnover is under £67,000, you may be eligible to apply for 'voluntary registration'.
There are both advantages and disadvantages to being VAT registered; an advantage would be increased credibility, whereas one of the disadvantages would be that you have to keep in-depth records of all VAT and submit the records regularly.