VAT (Value Added Tax)

VAT (Value Added Tax) is a consumption tax charged at each stage of a supply chain in the UK, EU, and most other countries outside the US, ultimately paid by the end consumer and remitted to the tax authority by VAT-registered businesses.

Applies in: United Kingdom European Union

VAT works through a chain. Every business in the chain charges VAT on what it sells (output tax) and reclaims VAT on what it buys (input tax), and pays the difference to the tax authority. The end consumer, who has no one to reclaim from, ends up bearing the cost. The mechanism is the same across the UK, EU, and most non-US countries that use a value-added tax model.

Rates are set per country. The UK standard rate is 20%, with reduced 5% and zero rates for specific categories. Ireland is 23%, Germany 19%, France 20%, the Netherlands 21%. Most countries have a registration threshold below which small businesses do not have to register or charge VAT. The UK threshold sits at GBP 90,000 of taxable turnover.

A VAT invoice (the document a VAT-registered seller must issue) has stricter content requirements than a plain invoice: it must include the seller's VAT number, the VAT rate applied to each line, the VAT amount, and a clear total. Buyers use that VAT amount to reclaim input tax, so getting the format right matters to both sides.

Common questions about VAT

Do I have to register for VAT?

Only once your taxable turnover crosses the registration threshold in the country you operate in. In the UK that is GBP 90,000 over a rolling 12 months. Below the threshold, registration is voluntary. Many small businesses choose to register voluntarily to reclaim input VAT, but it is not required.

How is VAT different from US sales tax?

US sales tax is charged once, at the point of sale to the end consumer, by the seller. VAT is charged at every stage of the supply chain, with businesses reclaiming what they paid on inputs. The visible amount the consumer pays can look similar, but the mechanics and the compliance burden are different: VAT pulls every business in the chain into reporting.

Can I invoice without showing VAT?

If you are not VAT-registered, yes: your invoice should not include a VAT number, rate, or amount. If you are VAT-registered, you must issue a VAT invoice for any taxable sale, even at the zero rate. Reverse-charge transactions are a separate case where the VAT amount on your invoice is zero but specific wording is required.

Use JupiterInvoice for VAT

VAT on a JupiterInvoice invoice is a field, a label, and an audit trail your buyer can act on without an email back-and-forth.

Invoicing in the United Kingdom

How to send an invoice in the UK: GBP, VAT, sort code and account number, IBAN for international, BACS and Faster Payments. Plain-English gu...

Invoicing in Ireland

How to send an invoice in Ireland: VAT number, EUR, IBAN, BIC, SEPA. With cross-border EU billing notes and reverse-charge basics.

Related terms

VAT number Reverse-charge VAT IVA GST Withholding tax

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