Value Added Tax (VAT) is an indirect tax charged on many goods (including works of art) and services that VAT-registered businesses provide in the UK.  It is charged on goods and some services that are imported from countries outside the European Union (EU), and brought into the UK from other EU countries.  If you are not registered for VAT it is illegal to add VAT to your invoices for fees or goods provided.

VAT is charged when a VAT-registered business sells to either another business or to a non-business customer; when VAT-registered businesses or self employed individuals buy goods or services they can generally reclaim the VAT they've paid.

There are three rates of VAT, depending on the goods or services the business provides:

• standard - 15% (until December 2009 when the rate will return to 17.5%)
• reduced - 5%
• zero - 0%

Registering for VAT is compulsory if income of a business (including self employment) is over the threshold, currently (for 2009) set at £68,000.  Check the latest income threshold for compulsory registration on the HMRC website.

In a situation where your income has not reached the threshold, the main advantage to voluntarily registering for VAT is that VAT paid on 'inputs' - i.e. things you buy for your business, like art materials or computer equipment - could be claimed back from the tax man.

You may find it useful to register voluntarily also if your main customers are registered for VAT and need a VAT invoice from you to claim the tax back themselves or your outputs are mainly zero rated goods (or exports outside of the EU, which are all zero rated), so that you will be in a position of reclaiming, rather than paying VAT.

VAT calculations, however, are extremely complex and time consuming and must be registered quarterly (instead of annually, like income tax returns), and it is generally only advantageous to voluntarily register for VAT if the amount you can claim back is over the amount you spend administering your claims (or spend on a VAT-specialist accountant to administer them on your behalf).

More information on how to register for VAT can be found on the BusinessLink website, and HMRC has all the latest up to date information on VAT for the UK.