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How much is VAT? A guide to UK VAT rates

May 4, 2022
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
Take for instance, if you buy from a VAT-registered supplier, it's likely you'll be charged VAT on the product you've bought from them, known as input VAT. If you use the item purchased from the supplier to manufacture a new product that you'll go on to sell to your customers, if you are a VAT-registered business you'll then charge output VAT to the consumer when you make a sale.

This can only work if your business is VAT-registered — businesses that aren't VAT-registered cannot claim the VAT back on purchases and expenses that include VAT. While most businesses register for VAT once surpassing the VAT threshold, some choose to register voluntarily to reclaim the VAT, especially if the majority of their suppliers charge VAT.

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.
Rate%Applicable to
Standard20%Most goods and services
Reduced5%Children's car seats, maternity and sanitary products, fuel and power for domestic use, energy-saved materials installed for domestic use
Zero0%Books and newspapers, children's clothes and shoes, motorcycle helmets

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.
As a VAT-registered business, you'll need to record every sale and purchase and the VAT rate associated on your VAT returns. To get an idea of what each VAT rate will look like on your sales and purchase forms, head over to our blog on VAT codes.

For the full list of the VAT rates that apply to different goods and services, head over to gov.uk.

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.
Before you apply, it's worth noting that you cannot reclaim the VAT on your purchases on this scheme, except on certain capital assets over £2,000. If you're not sure if this scheme is for you, you can book a one-off meeting with one of our accountants for advice.

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
You can find the full list of VAT exempt goods and services at HMRC's guide to VAT rates on different goods and services.

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.
To save yourself the mental gymnastics, you can use the Ember VAT calculator to work out how much VAT you'll need to charge your customers.

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:
OfferHow to charge VAT
DiscountsCharged on the discounted price (not the full price)
GiftsCharged on the gift's full value (in most cases — exceptions are listed below)
Multi-buysCharged on the combined price if all the items have the same VAT rate. If not, VAT is 'apportioned' as mixed-rate goods
Coupons and vouchersNo VAT due if given away free at time of purchase. If not, VAT due on the price charged
Link-save offers (e.g. buy-one-get-one-free)VAT is apportioned as mixed-rate goods, although there are exceptions. VAT can be charged on the combined value of the link-save item if the incentive product:
    Has a resale value of less than £1Has a sale value of less than £5Costs you less than 20% of the total of the other items in the offerIsn't sold at a separate price from the main product
Source: gov.uk

In some cases, VAT isn't charged on free goods and services, but only if certain conditions are met.
SuppliesCondition to meet so no VAT is due
Free samplesTester-sizes products that are given out solely for marketing purposes
Free loans of business assetsThe cost of hiring the asset is included in something else you sell
Free giftsThe total cost of all gifts to the same person is less than £50 in a 12 month period
Free servicesYou don't get any payment or goods or services in return
Source: gov.uk

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