VAT
Value Added Tax (VAT) must be operated by any trader who turns over more than £73,000 per year.
The standard rate is currently 20%.
VAT is charged on top of transactions (or included within them) and this tax is then paid over to HM Revenue & Customs, less any eligible VAT that has been paid on costs.
Book-keeping for a VAT registered trader needs to be able to keep the VAT separate in each transaction so it can be 'declared', and book-keeping software will usually have a specific field for the VAT component.
In order to be calculated and report correctly, VAT transactions come in different types. The most common are shown below: o Reduced Rate VAT (5%)
o Zero Rate VAT (0%)
o Exempt VAT
o EU VAT transactionso Out-of-Scope VAT
Book-keeping software will usually use a code, such as 'S' for Standard Rate, to designate the VAT status of a transaction. 
Understanding which codes to use depends on the circumstances and if you are not sure then you need to find out either from the accountant or HMRC. Although using the correct codes is important for accurate reporting, the main requirement is ensuring the right amount of cash is being paid over or recovered.
If it's not obvious, you can usually tell whether a trader is VAT registered because their registration number will be shown on any invoices or receipts they issue.
Book-keeping for VAT is covered in more depth in simulation quarter four. Until you get to this quarter the VAT function in the software you are using should be switched off. If this isn't possible then make sure the VAT field is kept as zero in each transaction - if a VAT balance is appearing in quarter's one to three then transactions are including some VAT when there is none.