Scope of VAT in UK

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VAT is an indirect tax payable whenever there is a supply of goods or services and is payable by recipient of such goods or services. Therefore, it is very important to understand the scope of VAT.

Scope of VAT is defined under Section 4 of the VAT Act, 1994 as follows:

“”4(1) VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.

(2) A taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply.””

Considering above, there are four conditions that have to be met in order to fall under scope of UK VAT-

There must be supply of goods or Services.
Supply must take place in UK.
Supply must be made by Taxable Person.
Supply must be made in course of Business i.e., it should be a Business Transaction.

If any one of the above conditions is not met, then such transaction would not fall under the scope of VAT.

Now lets understand in detail about each of the conditions as stated above:-

There are three important words that needs to be understand here i.e., what is supply, goods or services. Supply here means any business transaction where transaction is in nature of sale, exchange, transfer etc. Goods means any tangible or movable property like Furniture, machines etc., and services means anything other than Goods. Therefore, transaction should be supply of goods or supply of services.
Supply must take place in UK. For this, UK VAT contains provisions of Place of supply which helps to determine the place where supply take place.
Third condition is that supply must be made by registered taxable person i.e., VAT must be collected by such person who is registered for VAT purpose.
The last condition is that supply must be a business transaction. It means is transaction whether it take place in UK and in nature of supply of goods or services, however, made by person for personal purpose, like sale of old newspapers or scape sale by individual for non-business purposes, then no VAT would be charged on such transaction.

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