What is VAT?
You’ve probably heard plenty about VAT – it stands for value-added tax and it adds to the cost of nearly everything you buy in the UK. If you’re a business, you may be required to register for and collect VAT. So it’s a good idea to get a handle on what VAT is and how it works.
How can VAT affect my business?
You may need to add VAT to your prices.
You will need to send that extra money to HMRC.
You can claim back any VAT that you’re charged on business supplies.
How much is VAT
- 20% is the VAT rate for most goods and services.
5% is applied to some health, energy, heating, and protective products and services.
- 0% is applied to a range of products and services to do with health, building, publishing and kids’ clothing.
VAT exemptions and out-of-scope sales
VAT does not apply to all products and services. Some things, such as insurance, antiques, arts, and educational training are exempt. Other things, like statutory fees, are out of scope (they sit outside the tax system). Being exempt or out of scope is different from charging 0% VAT.
How does VAT work?
The VAT on any item is designed to be paid by the consumer in the end, rather than by the businesses involved in its supply. Take this example:
VAT on imports
You’re generally required to pay VAT on goods that you import into the UK. That VAT will probably be added to the price when you pay customs. You can generally claim it back when submitting your VAT return.
VAT on exports
If you sell goods and services to customers within the EU, you’ll probably need to add export VAT. The rate will depend on what you’re selling and who you’re selling to.
Chapter 2: Registering for VAT
Ready to register for VAT? We’ll take you through each step, from what you need before you register to choosing your accounting scheme and filing frequency.Read next chapter
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Your quick guide to VAT in the UK (1.1MB PDF)View the ebook