# VAT

> value added tax chargeable under the VATA or under any legislation replacing it or under any legislation which the VATA replaced and further means value

**Term:** VAT  
**Last updated:** 2026-07-07

## Definition

### Definition 1

In practice, a VAT definition tells both sides of a deal how the tax is treated on top of the agreed price. It means value added tax chargeable under the Value Added Tax Act 1994, any similar replacement tax, and any similar additional tax. For a business supplying goods or services, VAT is normally added to the net price, collected from the customer, and paid over to the tax authority. The definition matters because it settles whether the stated price is inclusive or exclusive of VAT, which party carries the cost, and how the amount is calculated if the standard rate, a reduced rate, or a zero rate applies to the supply. A company that gets this wrong can end up absorbing a tax it expected to pass on.

### Definition 2

As a worked example, suppose a contract sets a fee of 10,000 exclusive of VAT and the standard rate is 20 percent. The supplier invoices 10,000 plus 2,000 VAT, so the customer pays 12,000 and the supplier accounts for the 2,000 to the authority. If the definition had said the price was VAT inclusive, the 10,000 would already contain the tax, leaving the supplier with 8,333.33 net. The definition also covers any tax replacing VAT, so the clause keeps working if the rate changes or a successor tax is introduced during the life of the agreement. This is why many contracts pair the definition with a gross-up or valid VAT invoice requirement, so the paying party knows exactly what to expect and can recover input tax where eligible.

## Context

### Relevant circumstances

- When a UK supply of goods or services is potentially within the charge to VAT
- If parties need to allocate responsibility for VAT in addition to the headline price
- Where a contract requires gross-up, recovery or invoicing in the correct VAT form
- In the event the VAT rate or treatment changes during the life of the agreement
- When a business or company needs to confirm whether a quoted price is VAT inclusive or exclusive before signing
- Where a cross-border supply raises the question of which jurisdiction's VAT rules apply

### Relevant sectors

- Tax
- Legal Services
- Business Services

## Relevant contract types

- [Service Agreement](https://www.genieai.co/en-us/template-type/service-agreement)
- [Sale Agreement](https://www.genieai.co/en-us/template-type/sale-agreement)
- [Partnership Agreement](https://www.genieai.co/en-us/template-type/partnership-agreement)

---

This is the Markdown representation of [https://www.genieai.co/en-us/define/vat](https://www.genieai.co/en-us/define/vat), provided for AI agents and crawlers. The HTML page is canonical. See [/llms.txt](https://www.genieai.co/llms.txt) for the full content map.