Your guide to Value-Added Tax (VAT)
Understand everything VAT related for the UK so that your business can remain HMRC compliant.
Value-Added Tax (VAT) articles
Everything you need to know about VAT in the United Kingdom.
What is VAT?
If you’re starting a new business in the UK, you may be asking, ‘What is VAT’? Along with other important business considerations, dealing with HM Revenue and Customs (HMRC) and understanding value-added tax (VAT) are fundamental considerations. Read the article to find out everything you need to know about VAT including how much it is, how to deal with it, reverse charge, and the flat rate scheme.
VAT for small business
Understanding VAT for small business is a top concern for those operating in the UK. If you want VAT explained for small businesses, you’re going to have to first come to terms with value-added tax, thresholds, different VAT rates, accounting and how the HMRC is involved. Read the article to find everything you need to know about VAT as a small business.
How & when to register for VAT?
If you’ve started up a business in the UK, understanding how to register for VAT and when to register for VAT are important pieces of information. You’ll need to be comfortable with the VAT registration process before you begin charging VAT and submitting your first VAT return. Read the article to find out more.
How to calculate VAT?
If you’re a UK-based business and are operating above the VAT (value-added tax) threshold of £85,000, you’ll need to know how to calculate VAT and how to work out VAT. Read the article to break it down.
How to claim VAT back?
If you’re a VAT registered business operating in the UK, you’ll need to understand when and how to claim VAT back. Read the article to understand a VAT claim back, who can claim, what you can claim for, and when to do so.
VAT on imports & exports
Understanding how VAT on imports and exports operates can be a more complex affair than dealing with and calculating VAT domestically. If your UK-based business exports goods to the European Union or other countries, it’s important you know how this value-added tax works. Read the article as we unpack the intricacies of dealing with VAT when exporting or importing goods. This will include the impact of Brexit, VAT rates, rules for Northern Ireland vs. Great Britain, and other important considerations.
Value-Added Tax (VAT) FAQs
What is VAT?
VAT is Value Added Tax. It is a sales tax charged by VAT registered traders on the value of the goods or services supplied to their customers.
The law requires UK traders with sales (turnover) above the VAT threshold to register for VAT and charge it on supplies of goods or services. The trader charges the VAT and then pays it over to HM Revenue & Customs (HMRC), the government’s tax-collecting authority.
Traders whose sales are below the VAT threshold do not need to register for VAT (but can do so voluntarily) so not all traders are required to be VAT-registered.
Read our article to find out more about what is VAT, and what you need to know about it.
What is the VAT Flat Rate Scheme?
The VAT flat rate scheme is an alternative and simplified way of paying tax to HMRC. It can only be used by businesses turning over less than £150,000 (excluding VAT).
With the flat rate scheme, your business pays a fixed percentage of its annual turnover to the HMRC instead of on every sale.
This doesn’t suit every small business, so please speak to a qualified accountant or advisor before considering this method of paying VAT. To use the scheme, you must register with HMRC.
How much is VAT?
The standard VAT rate is 20%.
Certain items are deemed exempt from this value added tax, including postage stamps, financial and property transactions.
However, this standard rate may change depending on the goods your business deals with or offers for sale. There are 3 three main rates, as follows:
Standard VAT rate
Most goods and services are subject to the standard VAT rate of 20%. You should almost always charge this standard rate unless the goods or services your business offers are categorised as ‘reduced VAT’ or ‘zero-rated VAT’.
Reduced VAT rate
Applying reduced rate VAT depends entirely on what the item is, as well as the specific circumstances around the sale. For example:
- children’s car seats
- domestic fuel or power
- mobility aids for older people
Zero-rated VAT means that the goods sold are still VAT-taxable. The point is that the rate of VAT you must charge your customers is 0%.
To manage this, your business must record such sales in your accounts, and you must report them on your VAT Return to the HMRC. Examples include:
- books and newspapers
- children’s clothes and shoes
- most goods you export to non-EU countries
- goods supplied to a VAT registered EU business
What items are exempt from VAT?
Differing from zero rated VAT, there are certain products and services that attract no VAT and are known as ‘exempt’ or VAT exemptions. VAT isn’t charged for the following and you don’t include them in your taxable income:
- insurance, finance, and credit
- education and training
- fundraising events by non-profits and charities
- subscriptions to membership organisations
- selling, leasing, and letting of commercial land and buildings – this exemption can be waived