VAT (Value Added Tax), is a consumption tax that is levied on the sale of goods and services at each stage of the supply chain. It is a type of indirect tax, which means that it is ultimately borne by the end consumer of the goods or services.

In the UK, VAT is governed by HM Revenue & Customs (HMRC) and is a key source of revenue for the government. VAT is charged by businesses that are registered for VAT on their sales (output VAT) and is also paid by businesses on their purchases (input VAT). The difference between output VAT and input VAT is usually payable to HMRC or reclaimable as a refund, depending on the net result.

The standard rate of VAT in the UK is currently 20%, but there are also reduced rates (5% for certain goods and services, and 0% for certain essentials such as food and children's clothing), as well as exemptions and zero-rated supplies (where VAT is charged at 0% but businesses can still claim input VAT credits). Some goods and services, such as financial services and medical services, may be exempt from VAT altogether.

Businesses in the UK that have a taxable turnover above the VAT registration threshold (currently £85,000 per year) are required to register for VAT with HMRC and charge VAT on their taxable supplies. They are also required to submit regular VAT returns to HMRC, which provide details of their output VAT, input VAT, and the resulting VAT liability or refund. Businesses that have a taxable turnover below the VAT registration threshold may also voluntarily register for VAT if they wish to do so.

VAT can be complex, and it's important for businesses to understand their obligations and comply with VAT rules and regulations to avoid penalties and ensure accurate reporting. Professional advice from an accountant or tax advisor may be sought to navigate the complexities of VAT in the UK.

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