Posted: 21. May 2019 by: Rupert Tennant

Who Pays VAT

Who Pays VAT

May 21, 2019
VAT is the most common tax paid in the UK. It’s basically a sales tax in which you pay taxes on the value that the seller has added to the product. That added value is basically their profit, and that’s how everyone in the chain of production gets their share of the profit and pays their share of the taxes.
There are clearly set rules as to who needs to pay VAT, but many decide to pay even if they are below the set threshold. That’s because being in the system allows you to claim refunds.

On what VAT is paid?

The first thing to figure out is the services and good you’re providing eligible for paying VAT. If they are not, it doesn’t matter how much your business earns in a year; you won’t pay anything. These are some of the services and goods on which VAT is paid:

  • Business sales
  • Hiring or loaning goods
  • Selling business assets
  • Commissions
  • Items sold to staff (such as meals sold on the job)
  • Business goods used for personal reasons
  • Non-sales (such as bartering)

Different rules apply to charitable works that include selling goods and services.


Companies that have registered for VAT have certain responsibilities towards HMRC. The most important of these obligations is to charge your customers and clients the additional rate that will cover the cost of VAT you later need to pay to HMRC. You’ll also need to report your income and your VAT rates to HMRC on an annual level.
The business may also have the ability to ask for some tax refunds they have the right to use. If this is the case, the business has an obligation to provide the proper documents about the refund.

VAT rates

There are 3 main rates of VAT you could pay. The first is set at zero percent. This isn’t’ the same as paying no VAT. Those who pay zero rate taxes still need to report their income and their tax rates at zero, which is an expense on its own.
The reduced rate on the goods and services that qualify for it is set at 5 percent. There’s a list of these goods and services provided by HMRC. In the end, there’s a basic rate which applies to most goods and services and which most people and businesses pay, and that’s set at 20 percent.

What to do when charging VAT?

There are a few obligations you need to take on when you start charging VAT. The first and the most obvious of these is to simply charge the right VAT rate. The second is to let everyone know how much you the actual price of the product or service is. It can be done by stating a single price or by stating that it’s a price without VAT and that other charges apply.
You’ll also need to show the VAT information on your yearly returns and to pay your VAT dues on time.

VAT for charities

Businesses that sell their goods and services to charities are charged so-called zero tax rates. That means you don’t need to pay any taxes, but you need to report your prices, your rate and your income. The returns also need to be sent once a year.
It’s important that a charity you work with is registered as such and that you can prove that to HMRC. That way you’ll be able to claim the refund. Registering as a charity is simple, and it requires the organization to spend most of their turn over for actual charitable causes.

When not to charge VAT

There are a few cases in which you don’t need to charge VAT. Have in mind that this isn’t the same as paying zero percent VAT. There are no tax obligations for those who are exempt from VAT, and they don’t need to inform HMRC about their sales or profits at all.
These include:

  • Health services
  • Postage stamps and postage services
  • Insurance services
  • Goods sold outside the UK
  • Goods sold as part of a collecting hobby (such as stamps)

Once you report to HMRC that you fall under these categories, there are no other obligations to worry about.


VAT is the tax paid on the sales, and on the value, your business adds to the cost of the goods they sell and the services they provide. The turnover you need to have is set at £85.000 a year. After that, you must pay VAT, but you can pay it before if you want to.
There are 3 rates you could pay, one of which is zero. You don’t pay any taxes this way, but you still need to report your income.  The other two are set at 5 and 20 percent depending on the types of goods and services you provide.

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