1. How VAT works

You can only charge VAT if your business is registered for VAT.

VAT is charged on things like:

  • business sales - eg when you sell goods and services
  • hiring or loaning goods to someone
  • selling business assets
  • commission
  • items sold to staff - eg canteen meals
  • business goods used for personal reasons
  • ‘non-sales’ like bartering, part-exchange and gifts

These are known as ‘taxable supplies’. There are different rules for imports and exports and charities.

Responsibilities

VAT-registered businesses must:

  • charge VAT on their goods or services
  • reclaim any VAT they’ve paid on business-related goods or services

If you’re a VAT-registered business you must report to HM Revenue & Customs (HMRC) the amount of VAT you’ve charged and the amount of VAT you’ve paid. This is done through your VAT Return which is usually due every 3 months.

You must account for VAT on the full value of what you sell, even if you:

  • receive goods or services instead of money (eg if you take something in part-exchange)
  • haven’t charged any VAT to the customer - whatever price you charge is treated as including VAT

If you’ve charged more VAT than you’ve paid, you have to pay the difference to HMRC. If you’ve paid more VAT than you’ve charged, you can reclaim the difference from HMRC.

Help us improve GOV.UK

Please don't include any personal or financial information, for example your National Insurance or credit card numbers.