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How much is VAT? A guide to UK VAT rates

May 4, 2022Since VAT is categorically a consumption tax, odds are you've paid VAT in the past. However, if you've recently registered for VAT, you might not be sure how being VAT registered will affect your business.Depending on the goods or services you provide, the amount of VAT you'll need to charge your customers — and subsequently forward on to HM Revenue & Customs (HMRC) — is determined by its assigned VAT rate.But what exactly are the UK VAT rates? We'll be covering the chargeable VAT rates in the UK and the goods and services in each category, with a free VAT calculator you can use to work out how much VAT you owe.

What is VAT?

Before diving into VAT rates, we'll first take a look at what VAT is and how it works.In short, VAT, or 'Value Added Tax', is a tax on the value added at each step in the supply chain. It’s charged on any good or service that can be classified as ‘taxable supplies’ and can include any of the following:

Business sales of goods and servicesHiring or loaning goodsSelling business assetsCommissionItems sold to staff, such as canteen mealsBusiness goods used for personal reasons‘Non-sales,’ such as bartering, part-exchange and gifts

Once you've registered for VAT, you'll need to fill out at VAT return every 3 months. In this return, you report the amount of VAT you've charged and the amount of VAT you've paid.To make filling out your tax return as smooth as possible, it's a good idea to get to grips with the VAT rates that apply to the items that you purchase and sell. Read on to find out what the UK VAT rates are, how much they're charged at and the goods and services they're applicable to.

UK VAT rates 2022/23

There are 3 different rates of VAT in the United Kingdom: standard rate, reduced rate and zero-rate.

Standard rate

Applicable to the majority of goods and services, the standard rate of VAT in the UK is charged at 20%.

Reduced rate

Charged at 5%, reduced rate VAT is charged on both the item and the circumstances of the sale.Items that fall into this category include:

Most food, excluding alcoholic drinks which are charged at standard rateChildren's car seatsDomestic fuel and power (such as electricity and gas)Installed energy-saving materials for home energy provisionMaternity productsSanitary productsMobility aids ONLY if they're for someone over 60 and the aids are installed directly into their home — if not, they're charged at standard rate

Zero-rate

Zero-rated items are charged at 0%, meaning that while the goods and services in this category are not charged VAT, they still need to be listed on your VAT tax returns.The items that fall under this list are considered vital to the supply chain and as a result are listed as zero-rate to make them more affordable to the public.Items that are classified as zero-rate include:

Books and newspapersChildren's clothes and shoesMotorcycle helmetsMost goods exported from England, Wales and Scotland to a country outside of the UKMost goods exported from Northern Ireland to a country outside of the EU and the UK

While these rates are accurate at the time of writing, keep in mind that rates can change at any time and you must update the VAT rates you charge from the day they change.

Flat Rate Scheme

While VAT-registered businesses can balance out their input VAT and output VAT when filing their VAT return, this isn't the case for every business owner. Some may find that the amount of VAT they pay to VAT is more than the amount they're able to claim back, and as a result lose out from being VAT-registered.To counter this, business owners can sign up to the Flat Rate Scheme, where businesses only pay a fixed rate of VAT to HMRC and can keep the difference between what they charge customers and pay to HMRC.

If joining the scheme is for you, you must meet the following criteria:

Your business is VAT-registeredYou expect your taxable turnover — the total of everything sold that is not VAT exempt — to be £150,000 or less (excluding VAT) in the next 12 months

Zero-rate, out of scope and VAT exemption

In some circumstances, you might find that the goods or services you provide are classified as 'out of scope' or 'exempt.' Like zero-rated goods, these items are not charged VAT — but that's where the similarities between these three end.As mentioned above, while zero-rated goods are VAT free, there is still a rate of tax applicable to the item and as a result must be recorded in your VAT accounts and returns.

VAT exempt

VAT exempt items are those that you cannot charge VAT on. You'll still need to record these supplies in your general business accounts, but you don't need to include them in your taxable turnover for VAT purposes.VAT exempt items include:

InsurancePostage stamps or servicesHealth insurance provided by doctors

If you only sells VAT exempt items, your business is not eligible for VAT-registration and as a result you can't reclaim VAT on anything you've purchased for your business.

Out of scope

Out of scope goods and services are those that fall outside of the scope of VAT, and as a result you cannot charge or reclaim VAT on them. These items include:

Goods or services you buy and use outside the UKStatutory fees, such as a the London congestion chargeGoods you sell as part of a hobby, such as stamps from a stamp collectionDonations to charity if given without receiving anything in return

How much VAT do I charge?

The amount of VAT you'll need to charge on the goods and services you provide will depend on the VAT rate they fall into.Once you know the rate you need to apply, you can take a percentage of the price of your product and add it on to the product price as VAT. For example, if you sell a standard rate product priced at £100, you'd typically charge £120 to the consumer, keeping £100 for the business and remitting £20 to the government as VAT.

Since VAT is typically forwarded on to the consumer, VAT is often referred to as an indirect tax. You must account for VAT on the full value of what you sell, even if you receive goods or services instead of money, or choose not to forward the VAT charge onto the consumer and instead pay the charge yourself.

Discounts and free gifts

Whether it's part of a marketing promotion or simply to shift stock, you might decide at some point to sell items at a discount, or even give items away as a free gift. If you do, you might find these items are still subject to VAT.You can find an overview of how to charge VAT on various discounts and deals below: In some cases, VAT isn't charged on free goods and services, but only if certain conditions are met.