VAT Rate in the UK.

Is your business importing goods from abroad, or are you preparing for your travels? Learn how you can make VAT rates work in your favour.

VAT Rates

What is a VAT rate?

VAT (value added tax) is a type of consumption tax. The UK government applies it on the sale of goods and services.

VAT isn’t paid by businesses — instead, it’s charged to consumers in the price of goods, and collected by businesses, making it an indirect tax. Businesses are then responsible for reporting it to the government. In the UK, it must be reported to the HMRC (Her Majesty’s Revenue & Customs).

What is a VAT rate?
Rate %VAT What the rate applies to

Standard rate

20%

The standard VAT rate is 20%. It applies to most goods and services.

Reduced rate

5%

The reduced VAT rate is 5% — this applies to goods and services like some health products, fuel, heating and car seats for children.

Zero rate

0%

Zero-rated goods and services include most food, books and clothes for children. The sale of items in this category must still be reported on your VAT return, even though no VAT is charged.

How much is VAT in the UK?

Different VAT rates apply to different goods and services. The current VAT rates are:

VAT-uk

What are the VAT rates in other countries?

Choose a country to find its VAT rates.
Country

Australia

Germany

The Netherlands

Belgium

India

Norway

Canada

Ireland

Spain

China

Italy

Sweden

France

VAT for businesses.

If you’re running a business, there are a few things you should know about VAT.

What is the VAT threshold?

How does VAT work?

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UK VAT threshold 2019/20

What is the VAT threshold?

The VAT registration threshold for the 2019/20 tax year is £85,000. That means that if your business’s turnover for any rolling 12 month period exceeds £85,000, you’ll need to register for VAT. This doesn’t have to be a calendar year — the 12 month period could run from the start of October to the end of September, for instance.

The threshold applies to the taxable turnover of your business, not the profit. Taxable turnover is the total value of everything that you sell (that’s liable for VAT), including zero-rated products and services. Items that are VAT exempt are not included.

If you think it might benefit your business, you can register for VAT even if your turnover is below the VAT threshold.

How does VAT work?

VAT is collected at each point in the production of goods — every time value is added and a sale is made. This is what gives VAT its name — value-added tax. It’s designed to be paid by the consumer at the end. Here’s an example:

  1. A supplier sells a badminton racket to a shop for £120. They owe £20 VAT to HMRC.
  2. The shop pays £120 but can claim the £20 back from HMRC, so the shop doesn’t pay the VAT.
  3. The shop sells the racket to the customer for £220. The VAT is £44 which the customer, as the end-user, pays in full to the shop.
  4. Together with the reclaimable £20 VAT, the shop will end up paying £24 to HMRC.

Reclaim VAT.

If your business is VAT registered, you’ll be able to reclaim the VAT paid on purchases for business use. This is called ‘input tax’. The VAT amount that you have collected on the sale of your products and services is called ‘output tax’.

HMRC will deduct the ‘input tax’ from the ‘output tax’ of a certain period, and you’ll need to pay the difference. If you’ve paid more VAT than you’ve collected, you should be eligible for a repayment from HMRC.

To submit your claim, you’ll have to keep all the invoices you receive. Another thing to keep in mind is that the invoices must have been issued by another VAT-registered business.

Tax-free shopping - VAT for travellers.

So, you’ve done some shopping abroad, and paid a healthy amount of money for VAT. The good thing is you can often get the amount refunded once you’ve returned home.

For example, European Union residents can get a VAT refund on goods bought in Singapore from a retailer that offers tax-free shopping.

The conditions for a VAT refund are different in every country and should be checked according to your destination — there’s usually a minimum purchase amount, and some exceptions to be considered.

If you’re planning on visiting any of these countries, have a look at their rules for tax-free shopping. And if you’d like to save even more money, don’t miss out on the travel money debit card from TransferWise, and spend in shops or online at the real exchange rate.

VAT Refund.

When you’ve visited the UK, you’ll be able to get a VAT refund on items bought if:

  • You live outside the EU and are going back home
  • You’re an EU resident and are leaving the EU for 12 months or more
  • You work or study in the UK but you’re not an EU resident and you’re leaving the EU for 12 months or more

There are multiple ways of receiving the refund — either get paid immediately at a refund booth at the airport or send the approved form to a refund company.

How to get a VAT refund in 3 simple steps?

Application form

Application form

Get a Tax Refund Application Form (VAT 407) from the retailer. You might also be asked to show your passport to check that you’re eligible.

Customs check

Customs check

At customs, present your passport, VAT form(s), VAT invoice(s) and the tax-free goods.

Refund approved

Refund approved

If all the criteria is met, customs will approve your form. You’ll get a signed form that allows you to receive the refund.

FAQ about VAT rate.

As a VAT-registered business:

  1. You have to charge VAT on all taxable goods and services you sell.
  2. You must file a VAT return every 3 months, even if you have no VAT to report.
  3. You can reclaim the VAT you paid for goods and services from other VAT-registered businesses.

When reporting your VAT to HMRC, keep in mind, you must pay VAT even if you didn’t charge it from the customer — the price that you charge has the VAT included.

There are a few goods and services that are exempt from VAT and are not taxable. They include:

  • Education and training
  • Insurance and financial services
  • Fundraising events held by charities
  • Selling, leasing and letting of commercial properties.

VAT-exempt means the goods and services are outside the VAT system — you don’t need to charge any VAT on them nor report them on your VAT return. Even though you don’t pay VAT on zero-rated supplies, they are still taxable and must be reported on your VAT return to HMRC. You can also reclaim the input VAT that you paid to other businesses when producing your zero-rated goods.

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