The UK government collects taxes from its people for the development of the country. Those taxes are national insurance, income tax, and VAT. VAT is in the third number that generates revenue for the government and is charged by HM's revenue and customs.
What is VAT?
As the name is understood, it is a value-added tax on goods and services, which is an indirect tax, since it is paid by the seller to the government and not by the end-user (consumer) that bears the burden of this tax (who pays taxes to the merchant and the merchant pay it to the government). HMRC has decided the standard 20% VAT on many goods and services as well, there are some goods and services that fall into the 5% and 0% category.
Who needs to pay VAT?
All companies that do the business of VAT taxable goods and services and exceed the annual limit (currently £ 85,000 / - until March 2020) must register for VAT, business, or companies can register voluntarily if the volume of business is less than the threshold limit. All registered companies must pay this tax to the HMRC, known as the output tax, that they charged on their goods and services at the time of sale, also, this output tax that they can offset with the VAT incurred on the goods or services they own acquired (input tax).
VAT exempt products:
There are some products or services that do not fall under the VAT category means that no VAT is applied on items such as:
Games - including billiard bets and remote games played on the internet, phone, or television.
Lottery ticket sales online lottery games
Retailers' commission on selling lottery tickets
Ancient art
Fundraising charity events
Burial or cremation of dead people
Funeral plans under the insurance contract
Health services provided by registered doctors
Educational training provided by related agencies
Products with 0% VAT:
Certain foods and drinks
Equipment for the disabled
Prescribed drugs
Water
Sewer service
Books and other printed publications
Children’s clothes.
Donated goods sold by charity shops
What is the difference between VAT exempt and 0%?
VAT exempt and 0 classified VAT is not the same as a product classified with 0 VAT can be taxed, but VAT exempt products cannot, therefore, the products with 0 VAT classification will be part of your turnover, but VAT-exempt products will not be part of your turnover.
Finally, we can say that VAT is the third-highest main source of revenue for the government. And it plays an important role as it is applied to most of the goods and services though some are exempted and some in 0 rated VAT.
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