VAT is a tax where the starting point is often the legal entity. So if John is a sole trader buying and selling computers but also has income from sales of goods on eBay (assuming a business motive, of course) and consultancy services, then he will be liable to pay output tax on all of his income sources if he is VAT registered and all income is earned within his sole trader entity.

If he is not VAT registered, then he must take into account all sources of business income as far as the VAT registration threshold of £83,000 is concerned.

The key phrase in the legislation is ‘taxable person’, ie, sole trader, partnership, limited company, etc, rather than ‘taxable business’.

So here goes with this month’s challenge: let’s assume that John is VAT registered and has just bought a house in London that he intends to renovate using the services of a builder, with total costs of £60,000 plus VAT (including materials supplied by the builder as part of his work).

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