Neither. Businesses are allowed to claim back the VAT they pay on their business costs which they declare in their VAT return to HMRC. Therefore, it is merely a transactional tax which does not come at the cost of or profit a business. It shouldn’t make a big difference to profits.

However, there will be some circumstances where you can’t claim back VAT on business costs. For example, VAT charged on business entertainment or some costs on cars or if you are a partially exempt business. If any of this applies to you, bear it in mind. Check the government VAT guide for details.

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