VAT is a tax collected
by the Government. It belongs to a
set of taxes called 'indirect
taxes': it is a tax added to goods or services.
VAT is charged on the supply of goods and services
in the UK and on the import of goods and certain services into the UK.
Currently there are three different rates for VAT:
17.5% - this is the VAT rate added to most goods
5% - this is a reduced VAT rate
which is put on fuel and power used in the home (you can take
a look at the electricity
bill and you will find out that there is only 5% charged) and
0% - there
isn't any VAT on most food, books,
newspapers and young children's clothing.
So most of the
time when you buy goods or services,
you pay the VAT. It is already included
in the price when you buy things.
Example: You are buying some clothes - two pairs of socks, a t-shirt
and some trousers. In total you pay £49.98. Included in the price
is 17.5% VAT.
Businesses are able to reclaim most of the
VAT on goods and services for use by the business. The VAT is
usually reclaimed quarterly by completing a VAT return form and
returning it to Customs & Excise. Any VAT due from invoices
is also paid at the same time.