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An outline of VAT is included under Tax.
Accounts record the effect of transactions on the business.
If a business recovers all the VAT on its purchases of goods and its expenses, the cost of VAT to that business is nil (apart from the finance and administration cost). VAT charged on sales is remitted to Customs and Excise and does not benefit the business (apart from use of the money until remitted).
Accounts prepared for a business making sales fully chargeable to tax (including at zero rate), do not include VAT in the turnover or expenses.
A business which makes VAT exempt supplies will not have VAT in its sales figures. Because it suffers VAT as part of the price of its goods purchased and expenses, these costs are shown in the accounts including VAT.
Businesses which fall into the partial exemption rules will show turnover and expenses excluding VAT, but the amount of VAT not recovered under those rules will be shown as an expense, either separately or as part of another expenses heading, e.g. General Expenses.
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