VAT

VAT (Value Added Tax) is a tax added to the price of most goods and services at each stage of production and sale. It is paid by the final consumer, while businesses collect and pass the tax to the government. VAT ensures that tax is paid on the value added at each step of making or selling a product or service. The rate of VAT depends on the type of goods or services being sold.

Let’s say you run a store selling sports equipment. You buy a racket from your supplier for £120 - this price includes £20 VAT (20% standard VAT Rate). Later, you sell the racket to your customer for £220, which includes £44 VAT (20% standard VAT Rate).

Here’s how VAT works:

• You paid £20 VAT when you bought the racket.
• You collected £44 VAT when you sold it.
• You now need to send only the difference (£44 − £20 = £24) to HMRC.

VAT is only charged on the value you added, and the final customer is the one who ultimately pays the VAT as part of the selling price.