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VAT which stands for value added tax, is a tax that is placed on the vast majority of goods and services sold within the U.K.

All VAT registered companies are legally obliged to charge their clients and customers VAT and then return collected VAT to HM Revenue & Customs.

VAT is also charged on goods and services imported into the U.K. from other countries. VAT is currently charged at three different rates in the U.K. These are:

  • Zero                       0%   VAT
  • Reduced              5%   VAT
  • Standard              20% VAT

The different rates apply to various products and services, for example:

  • Children’s clothes and food          0% VAT rate
  • Domestic energy supplies             5% VAT rate
  • Most other goods and services   20%VAT rate


There are some services and activities that are completely VAT exempt, which include:

  • Services provided by doctors and dentists
  • Education and training
  • Fundraising events by charities
  • Membership subscriptions

The main advantage to companies being VAT registered is that they can then reclaim the VAT they have paid. Non VAT registered businesses are not able to reclaim any VAT under U.K. law


When Should You Register Your Company For VAT?


Legally every company needs to register for VAT if their turnover in a 12 month period goes over what is known as the ‘VAT threshold’. This threshold is currently set at £79,000.

You are able to register for VAT even if you currently have a turnover below the current VAT threshold. If you are unsure about how the VAT registration process works or about your company’s eligibility for VAT you can use the following resource from HMRC to gain further information on this issue.

Once your business is VAT registered you will need to start charging your customers VAT. This enables any of your business customers that are also VAT registered to reclaim the VAT that you have charged them.

Before you send on collected VAT to HMRC, you are first able to claim back the VAT on any products or services that you purchased for your business.

For further information on how VAT affects companies operating in the U.K. please click here to watch the video produced by HMRC.

For more VAT basics you can check out our comprehensive guide in our small business resource.

Marc O'Dwyer

After completing a Graduate program in Marketing, Marc’s impressive sales career began at Allied Irish Banks, Pitney Bowes and Panasonic where he received numerous Irish and European sales performance awards and consistently exceeded targets and expectations. In 1992, Marc’s entrepreneurial spirit led him to set up his own business, Irish International Sales (IIS). Initially, this company was a reseller for Take 5 Accounts and Payroll software. Within four years, IIS became the largest reseller of Take 5 in Ireland, acquiring four other Take 5 resellers. He also found time to set up two mobile phone shops under the Cellular World brand and a web design company offering website design services for small businesses. In 2001, he bought the majority share in a small Irish software business, Big Red Book. At that time, the company was losing money. The company became profitable within two months, and Marc then acquired a payroll company to compliment Big Red Books Accounting products. In 2003, IIS were appointed as Channel Partners with SAP for their new SME product, SAP Business One. Marc sold his Take 5 business and concentrated on developing this new market for SAP As a result, by 2007, IIS was recognised as the largest Channel Partner for SAP in EMEA (Europe Middle East and Africa). In 2008, the IIS Sales Manager bought the Company from Marc in an MBO. He launched Big red cloud in June 2012, the online version of big red book, to date the company successfully converts 59% of trials into sales and the number of customers is growing rapidly. Marc continues to run both Big Red Book and Big Red Cloud which now support 75,000 businesses. He is a very keen sportsman, having played rugby for 20 years, represented Leinster at under 16 and under 20 levels, and league squash with Fitzwilliam Lawn Tennis Club for 10 years. Marc has competed in 11 Marathons, including the London and Boston Marathons, and has completed several Triathlons and Half Ironman races. He has also completed six Ironman Races in Austria(x2), Frankfurt (Germany), Nice (France) , Mallorca (Spain) and Copenhagen (Denmark)

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