VAT
Liability to value added tax (VAT) VAT is charged on the value of supplies of taxable goods and services made in the UK, including some exports to EU countries. It is also chargeable on imports of goods from outside the EU.
The main rates are zero and 17.5%, but a few supplies are charged at 5%.

Registration
All traders must register for VAT if they make taxable supplies which exceed the set limits.
Where the value of taxable supplies in the previous 12 months was more than £55,000 (£54,000 before 25 April 2002), or is likely to exceed this annual limit within the next 30 days, the trader has to register within 30 days. Failure to notify on time attracts penalties.

The VAT system
A registered trader must charge customers output VAT on any sales. The value of input VAT can be offset against output VAT and the excess output VAT is paid over to Customs and Excise. Where there is an excess of input VAT, tax may be reclaimed.

Some input VAT cannot be reclaimed:
Purchases of motor cars, except cars bought wholly for business purposes after 31 July 1995.
Business entertainment expenses.
Most businesses have to account for VAT at the date that the invoice for the supply is raised. However, traders can claim VAT bad debt relief on debts more than six months old that have been written off.
Traders with a turnover of not more than £600,000 may account for VAT on a cash basis rather than an invoice basis, thereby obtaining automatic relief for any bad debts.

Exempt supplies
Certain supplies are exempt from VAT. Output VAT is not charged on such supplies and, in principle, input VAT attributable to such supplies cannot be reclaimed (or the claim is restricted).