A business must register for VAT if the value of its taxable supplies exceeds the annual VAT registration threshold.
Value Added Tax (VAT) is charged by VAT-registered businesses on their sales. This is known as output VAT, and these sales are referred to as outputs.
VAT is also charged on most goods and services that a business purchases. This is known as input VAT. In most cases, input VAT can be reclaimed against output VAT, subject to VAT rules.
There are three main VAT rates in the UK:
Standard rate: 20%
Applies to most goods and services.
Reduced rate: 5%
Applies to specific items such as domestic fuel and power.
Zero rate: 0%
Applies to items like most food and children’s clothing.
Some supplies are exempt from VAT. This means VAT is not charged, and input VAT related to these supplies usually cannot be reclaimed. Common examples include:
Postage stamps
Financial services
Insurance transactions
Annual Registration Limit (1 April 2025 to 31 March 2026): £90,000
Annual Deregistration Limit (1 April 2025 to 31 March 2026): £88,000
Understanding VAT rules is essential to avoid penalties and manage cash flow efficiently. If you are running or starting a business in the London area, PRO-TAXMAN LTD can help you with VAT registration, compliance, and ongoing VAT management. Contact us for professional guidance tailored to your business needs.
