Is that no just if you are VAT registered as a business?
As someone who was registered for VAT when I ran my business:
If I invoice a UK or EU customer for work done, I must charge VAT at the standard rate (20%). So £1000 of work becomes £1200 including VAT.
If my customer is registered for VAT, he can claim back the VAT which I charged him, from HMRC (Her Majesties Revenue and Customs), so effectively he has only payed the £1000.
If I buy some equipment for my business, say a computer from Dell, if the computer costs £1000, I will pay £1200.
I can then claim the £200 of VAT back from HMRC.
If I sell the computer to a customer for £1500, must also charge VAT, so the cost to the customer will be £1800.
I have collected £300 of VAT on behalf of HMRC.
So at the end of the 3 month VAT period, I will pay to HMRC:
£200 for the work I have done
£300 for the sale of the computer
-£200 for the cost of the computer
Total £100 is paid to HMRC
WRONG!
That is VAT in a nutshell.
Many business people will complain how complex it is, but for me with a high value low volume business, it took up less than half an hour every three months. Because I kept on top of the financial paper work, it was dead easy.
JimB
Edit - a couple of days later.
I was just browsing past this thread and noticed a major error/ambiguity in my calculation...
What I should have said, was:
I collected £200 of VAT for the work I have done
I collected £300 of VAT for the sale of the computer
I can claim back £200 of VAT for the cost of the computer
So I owe HMRC £200 + £300 - £200 = £300
The moral of this little tale is - Don't do your VAT Return when you are tired!