In the UK, everybody pays VAT, including businesses.

However, business are allowed to claim the VAT back on any purchases that they make.

This is a simplistic explanation, though: If a small business wishes to claim back VAT, then they have to charge VAT on their services/products. If they don't charge VAT on their services/products, they can't claim VAT back on their purchases.

Above a certain size, a business has no choice: they must charge VAT.

For a more in depth (and probably more accurate explanation), here's what the Inland Revenue have to say about the subject.