Value Added Tax (VAT) is a tax that applies to the purchase of goods or services. If your business exceeds a turnover of £85,000, VAT registration becomes mandatory. This mandates these businesses to collect VAT directly from customers for the goods and services rendered. Consequently, they must file quarterly returns with HMRC every three months. Non-compliance could lead to penalties.

In the United Kingdom, the standard VAT rate stands at 20%, which covers most goods and services. Moreover, specific items like health-related products, energy, heating, and protective goods and services are subject to a reduced rate of 5%. Importantly, certain products and services in health, construction, publishing, or children’s clothing categories are exempt from VAT. For more details, visit http://www.hmrc.gov.uk/VAT/forms-rates/rates/goods-services.htm.