VAT (Value Added Tax)
VAT is a consumption tax charged at each stage of the supply chain.
Value Added Tax is collected on the value added at each stage of production and distribution, with businesses reclaiming the VAT they pay on inputs. The end consumer bears the full cost. VAT rates and rules differ by country — the EU, UK, and many others use VAT, each with its own registration thresholds and rates.
Example
A UK shop sells a £100 item plus 20% VAT, collecting £120 and remitting the £20 VAT to HMRC.
Related terms
Frequently asked questions
How is VAT different from sales tax?
VAT is collected at every stage of the supply chain with input credits along the way; sales tax (as in the US) is generally collected only once, at the final retail sale. Both are consumption taxes paid ultimately by the consumer.
When must a business register for VAT?
Each country sets a turnover threshold above which registration is mandatory — for example, there is a set threshold in the UK and the EU. Check your country's current threshold, as they change periodically.
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