VAT vs Sales Tax: What Is the Difference?

VAT and US sales tax both tax spending, but they work differently. A VAT-registered UK business charges VAT on its sales and can reclaim the VAT on its business purchases. US sales tax is imposed by states and local governments, and the seller collects it from the buyer on a retail sale.

By Jake McKenna, FounderPublished Last reviewed

This page explains the difference. It is general information, not tax advice, and it does not cover every rule.

How do VAT and sales tax compare?

Item UK VAT US sales tax (Utah example)
What is taxed Goods and services a VAT-registered business sells Retail sales and leases of tangible personal property, and certain services
Who collects it A VAT-registered business The retailer or marketplace facilitator
When you must register When taxable turnover over 12 months goes above £90,000, or when you expect it to go over £90,000 in the next 30 days alone Retailers and marketplace facilitators must collect and pay
Tax on your own purchases A VAT-registered business can reclaim VAT on business purchases The buyer is the taxpayer, and the seller collects the tax from the buyer
Rate Standard rate is 20% Differs by location

The UK figures are as GOV.UK stated them on 22 October 2026. They can change, so check the source pages below before you rely on them.

How does UK VAT work?

According to GOV.UK, once you are VAT registered you must charge VAT on the goods and services you sell. You can also reclaim VAT on items you buy for use in your business. The effect is that VAT is charged by each VAT-registered business in a chain of sales, and each can reclaim the VAT it paid on its business purchases.

You must register when your taxable turnover for the last 12 months goes over the VAT threshold, which GOV.UK gives as £90,000. You must also register if you expect your taxable turnover to go over £90,000 in the next 30 days alone. Taxable turnover is the total value of everything you sell that is not VAT exempt or out of scope. The standard rate is 20%.

How does US sales tax work?

In the United States, sales taxes are levied by states, and in many states there are also county or city sales taxes, according to a 2017 report by the federal Government Accountability Office.

In Utah, the Tax Commission says sales tax applies to retail sales and leases of tangible personal property, and that certain services are taxable too: its example is charges for labor to repair, renovate or clean tangible personal property. Its FAQ points to Publication 25 for details. Retailers and marketplace facilitators must collect and pay it, and the seller collects the tax from the buyer and pays it to the Tax Commission. The rate depends on where the sale takes place: the Tax Commission publishes rates by jurisdiction.

What is the practical difference for a business?

  • Where the tax sits. VAT passes through every registered business in a chain, and each can reclaim the VAT on its purchases. Utah sales tax is collected from the buyer at the retail sale.
  • Who must register. VAT has a turnover threshold. Utah requires retailers and marketplace facilitators to collect, so a seller needs to check whether it is in scope.
  • Rates and returns. VAT has a standard rate of 20%. Utah sales tax rates vary by location, so a business selling in several places may need to track several rates.

What does this mean if you have UK ties?

If you moved a business or a way of thinking from the UK to the US, the habits do not transfer neatly. A UK owner used to reclaiming VAT on purchases will find that sales tax does not work that way. Our founder, Jake McKenna, is British and now works with US businesses from Lehi, Utah.

We offer sales tax support: we track the sales tax you have collected and owe, reconcile it monthly and prepare the figures for filing by you or your CPA. See our bookkeeping service. We do not prepare tax returns, and this page does not cover UK VAT filing. For either, talk to a qualified tax professional. For other differences between the two systems, read UK vs US accounting differences and Ltd vs LLC.

Need this done for you? See our Bookkeeping service, or pricing. English Oak Financial does not prepare tax returns, perform audits or give investment advice. This guide is general information, not tax, legal or investment advice.

Sources

Common questions

Is VAT the same as sales tax?

No. Both are taxes on spending, but VAT is charged by each VAT-registered business in a chain and can be reclaimed on business purchases. US sales tax is imposed by states and local governments and is collected from the buyer at the retail sale.

Who collects sales tax in Utah?

Retailers and marketplace facilitators must collect and pay sales and use tax, according to the Utah State Tax Commission. The seller collects the tax from the buyer and pays it to the Tax Commission.

Does English Oak Financial handle sales tax?

We offer sales tax support. We track the sales tax collected and owed, reconcile it monthly and prepare the figures for filing by the client or their CPA. We do not prepare tax returns.

What is the UK VAT registration threshold?

GOV.UK says you must register when your total taxable turnover for the last 12 months goes over £90,000. Check the GOV.UK page for the current figure.

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