What is Value-added Tax ( VAT ) ?
The standard rate of VAT increased to 20% on 4 January 2011 (from 17.5%). Few things are exempt from VAT , such as postage stamps, financial and property transactions. The VAT charge depends on their goods and services.
The standard rate of VAT increased to 20% on 4 January 2011 (from 17.5%).
| % of VAT | What the rate applies to |
|---|---|
| Standard rate 20% | Most goods and services |
| Reduced rate 5% | Some goods and services, eg children’s car seats and home energy |
| Zero rate 0% | Zero-rated goods and services, eg most food and children’s clothes |
VAT is an indirect tax because the tax is paid to the government by the seller i.e. business rather than the person who ultimately bears the economic burden of the tax i.e. consumer
Businesses and charging VAT
VAT rates:
There are 3 different rates of VAT and you must make sure you charge the right amount.
Standard rate:
Most goods and services are standard rate. You should charge this rate unless the goods or services are classed as reduced or zero-rated.
This includes:
- any goods below the distance selling threshold you supply to non-VAT registered EU customers – if you go over the threshold you’ll have to register for VAT in that country
- most services you supply to an EU non-business customer – there are different rules for business customers
Reduced rate
When you charge this rate can depend on what the item is as well as the circumstances of the sale, for example:
- children’s car seats and domestic fuel or power are always charged at 5%
- mobility aids for older people are only charged at 5% if they’re for someone over 60 and the goods are installed in their home
Zero rate
Zero-rated means that the goods are still VAT-taxable but the rate of VAT you must charge your customers is 0%. You still have to record them in your VAT accounts and report them on your VAT Return. Examples include:
- books and newspapers
- children’s clothes and shoes
- motorcycle helmets
- most goods you export to non-EU countries
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