UK VAT Rate
Many of us are familiar with VAT in the UK, but do you know that VAT UK is responsible for a third of the government’s total revenue for every purchase through VAT rate UK? Although the VAT is highly significant, it remains one of the most misunderstood and confusing taxes. High street consumers did not notice UK VAT as it is included in the price.
Value-added tax or VAT is a tax imposed by the UK government on goods and services. VAT is applied at each stage of the supply chain, from production to the sale of products to the customer. Let’s discuss how much the UK VAT rate is, who pays for it, how you can calculate it, and reclaim it.
UK VAT Rate
There are three VAT rates in the UK for different goods and services. Below is the UK VAT rates for different categories and their general application:
| Rate | Charge | Applied to |
|---|---|---|
| Standard | 20% | Most goods and services |
| Reduced | 5% | Some goods and services i.e. home energy, children’s car seats, and residential property conversions. |
| Zero | 0% | Most food and children’s clothing |
All the goods and services do not fall under VAT, some are either exempt or not covered by VAT. For example, insurance, healthcare, postage stamps, and education are exempt from VAT and statutory fees, goods or services purchased and used outside the UK, and donations to charities are not covered by the UK VAT.
Businesses that register themselves with VAT should add VAT to the services and goods they provide and submit the VAT collected to the HM Revenue & Customs (HMRC). They can also claim VAT paid on their business expenses.
Who Pays VAT and How?
The standard UK VAT rate is 20% and all businesses with more than £85,000 turnover must register to pay and charge VAT on the products and services they buy and sell. Additionally, small businesses can also register for VAT if they want.
VAT-registered businesses charge VAT from their customers but they must pay it back to HMRC to claim VAT return. You can pay to HMRC through the following:
- Faster payments via phone or online
- Using an online form by CHAPS
- Debit cards
- BACS
- Standing order (valid for a few VAT schemes)
- Credit cards
- Banks
VAT Calculation
If you do not have any idea about how to calculate VAT for a product then you can seek help from this guide as calculating VAT is easy. First, you have to determine the VAT inclusive price of the product then multiply the price excluding VAT by 1.2, consequently adding the 20% standard VAT rate. For the reduced VAT which is 5% multiply the price excluding VAT by 1.05.
If you do not know how to calculate or find VAT-exclusive prices you can divide the total price with VAT by 1.2 for the 20% standard VAT rate, or by 1.05 for the 5% reduced rate.
VAT Return
VAT in the UK benefits VAT-registered businesses via a VAT return where they submit output tax and input tax amounts to HMRC. Moreover, for VAT regulations well-established businesses with over £90,000 turnover must follow Making Tax Digital (MTD).
Can I Claim a VAT UK Refund?
If you are thinking of reclaiming VAT back in the UK, you are not alone. UK VAT can be reclaimed on business-related goods and services. However, you can not reclaim VAT on goods and services you purchase for personal use.
Business owners can get a quarterly VAT return by calculating the difference between the VAT you paid on your business and the VAT you charged. I always discuss the VAT requirements and claim procedure with a qualified business tax expert to avoid any complications.
Is VAT always 20% in UK?
The standard UK VAT rate is 20% but it is not always 20% on all goods and services. Mostly, 20% VAT is applicable on all goods and services except fuel and reduced-rate supplies.
When was UK VAT 15%?
From the year 2009-10, the UK VAT rate was 15%.
What is exempt from VAT?
The Value Added Tax (VAT) does not apply to each purchase. There are a few services and goods that are exempt from VAT such as insurance, health, and education services.
The UK VAT rate influences both businesses and consumers as it is a crucial part of the UK’s tax system. Currently, the standard VAT rate in UK is 20% and it is applicable on most goods and services. Understanding VAT is essential for financial planning and maintaining cash flow strategically.