VAT (Value Added Tax) is a tax that you have to pay on top of purchases of certain items or charge if you’re a VAT registered business. This tax is 20%, 5% or 0% (depending on the products) of the net price. If you see a product priced at £2.40, then the tax you have paid is £0.40 as this is 20% of the net price of £2.
Most goods and services are standard rate and you should charge this unless the goods or services that you are providing are zero or reduced rate.
The goods that are charged at a reduced rate of 5% are children’s car seats and domestic fuel or power.
Zero rated goods are charged on books and newspapers, children’s clothes and motorcycle helmets.
You will need to register for VAT when your VAT taxable turnover is more than £82,000 or you can voluntarily register for VAT. From this, you will need to charge the right amount of VAT to customers, pay any VAT due to HMRC, submit VAT returns and keep VAT records and a VAT account.