vat
Definition
VAT is a tax that gets added to the price of goods and services at each stage of the supply chain, from production all the way to the final sale to a customer. Businesses collect this tax on behalf of the government and then pass it along, which means you act as a kind of tax collector when you charge VAT to your customers.
Example
If you run a furniture shop in the UK and sell a table for £500, you would charge the customer £600 including 20% VAT, and then send that £100 to HMRC when you file your VAT return.
Watch Out
Once your business revenue crosses the VAT registration threshold (currently £90,000 in the UK), you are legally required to register for VAT, and missing this deadline can result in penalties.
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This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.