The Burden of VAT for Small Businesses

VAT or Value Added Tax is a sales tax that is applied to goods and services sold in the European Union (EU) and other countries that follow a similar tax system. VAT is often seen as burdensome for small businesses as it can result in higher costs and administrative burdens. Small business owners are expected to collect, report and pay VAT to the government, which can be a daunting task for those who don’t have the resources to hire a professional accountant. This article explores how VAT exemptions can help small business owners save money and reduce administrative burdens.

What Are VAT Exemptions?

VAT exemptions are a way for small business owners to avoid paying VAT on certain goods and services. In the UK, the government provides VAT exemptions for small businesses with an annual turnover of less than £85,000. Businesses that fall under this threshold are called VAT-exempt businesses.

Who Qualifies for VAT Exemptions?

Small businesses that have a turnover of less than £85,000 per annum are eligible for VAT exemptions. This threshold is based on the total amount of taxable supplies a business makes, and it includes goods and services that are subject to VAT. Businesses that are eligible for VAT exemptions include sole traders, partnerships, limited companies, charities and non-profit organizations.

What Goods and Services Are Covered by VAT Exemptions?

VAT exemptions cover a range of goods and services that are considered essential for small businesses. These include:

  • Fuel and power for heating and lighting
  • Most food and drink (see exceptions below)
  • Medical equipment and supplies
  • Books, newspapers and magazines
  • Public transport services
  • Childcare services
  • Postage and delivery services
  • Education and training services

However, there are some goods and services that are not covered by VAT exemptions. These include:

  • Alcoholic drinks and tobacco products
  • Hot food and drinks
  • Hiring a vehicle
  • Selling or leasing land or buildings
  • Selling second-hand goods (e.g. cars or antiques)
  • Electronic equipment and accessories

Why Are VAT Exemptions Important for Small Business Owners?

The main reason why VAT exemptions are important for small business owners is that they help reduce costs and administrative burdens. Small businesses that are VAT-exempt do not have to pay VAT on the goods and services that are covered by the exemption. This means that they can save money on their purchases and investments, and they can pass those savings onto their customers.

In addition, small businesses that are VAT-exempt do not have to register for VAT or submit VAT returns to the government. This means that they don’t have to spend time and money on accounting, and they don’t have to worry about the complexity of the VAT system.

Overall, VAT exemptions help small business owners focus on what they do best – running their business. VAT exemptions provide a simple, cost-effective and efficient solution for small businesses that want to reduce their administrative burdens and improve their bottom line.

How Can Small Business Owners Apply for VAT Exemptions?

Small business owners who want to apply for VAT exemptions can do so by registering as a VAT-exempt business with HM Revenue & Customs (HMRC). To do this, they need to fill in a VAT exemption form and submit it to HMRC along with their tax returns.

Small business owners who are already registered for VAT can also apply for VAT exemptions by deregistering for VAT if their turnover falls below the £85,000 threshold. However, they need to be aware that deregistering for VAT may have other tax implications, and they should seek professional advice before making any decisions.


Small business owners face many challenges in today’s economy, but VAT exemptions can help reduce the burden of taxation and administration. VAT exemptions can help small businesses save money on their purchases and investments, and they can help them focus on what they do best – running their business.

If you are a small business owner, it’s important to understand your eligibility for VAT exemptions and how you can apply for them. Whether you are starting a new business or looking to reduce costs for an existing one, VAT exemptions can provide a simple and effective way to improve your bottom line.

Remember that VAT exemptions are only one aspect of managing your business finances, and you should seek professional advice if you have any questions or concerns. With the right support and guidance, small business owners can overcome the challenges of VAT and succeed in today’s competitive marketplace.