VAT basic principles

What is VAT?

The UK value added tax (VAT) system is:

1. •

   derived from the EU Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (the VAT Directive), and

2. •

   mainly set out in the Value Added Tax Act 1994 (VATA 1994)

EU member states also have a system of VAT. The UK ceased to be an EU Member State on 31 January 2020. On this date the UK entered an implementation period (IP), during which it continued to be treated as a Member State for many purposes, and remained bound by EU law. The IP ended at 11 pm on 31 December 2020. On that date, a body of EU-derived rights and legislation, known as retained EU law (REUL), was converted into domestic UK law. For more on REUL and tax, see Practice Note: Retained EU law and tax.

On 1 January 2024, REUL that remained in force after the end of 2023 was recategorised as ‘assimilated law’. That recategorisation reflects a change in its status and treatment under UK law, in that assimilated law is generally to