There are three types of VAT rates used in the UK, depending on the product or service being provided:
|Standard||20%||Most goods and services such as adult clothes, furniture, alcoholic drinks|
|Reduced||5%||Female sanitary items, children’s car seats and some energy-saving materials in the home|
|Zero||0%||Most food, coffee and children’s clothes|
|Exempt||n/a||Interest, bank charges, education, insurance, postal services, residential property rent|
Once you are registered for VAT, there are different VAT rates that you need to apply when you invoice your customers depending on what you are supplying them. Equally, depending on what you buy in your business, you may pay different rates of VAT.
There are three main rates – standard rate (20%), reduced rate (5%) and zero rate (0%)
Standard Rate (20%)
Most goods and services supplied in the UK are charged at the standard rate, so unless what you sell falls into the reduced or zero-rated category, then most likely you’ll need to apply this rate.
Reduced Rate (5%)
Certain products attract the reduced rate as a way to help the general public buy certain goods and services. This includes:
- Female sanitary items;
- Children’s car seats;
- Domestic fuel and power;
- Mobility aids for the over 60s.
Zero Rate (0%)
Zero-rated means that the goods are still VAT-taxable but the rate of VAT charged 0%, so they must still be included on VAT returns. Goods and services that are zero rated include:
- some food
- books and newspapers
- children’s clothes and shoes
- most goods and services sold to non-EU countries
- goods you supply to a VAT registered business in the EU – you can check if the VAT number is valid
- services supplied under the reverse charge arrangement
The exempt VAT rate means the goods or service is totally outside of the scope of VAT and shouldn’t appear on the VAT return.
New Here? Learn how to set up the financial side of your business with these easy to understand guides and resources:
- Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
- Tax Records and Bookkeeping – Understand what tax records you’ll need to keep and how to set up your own bookkeeping system;
- Self Employment Taxes Explained – Learn what taxes you’ll pay, how much and when;
- VAT Guides – From registration to de-registration, VAT schemes and thresholds, these guides will take you through the basics every UK small business owner needs to know;
- Invoice Template – Free template and step-by-step guide so you can get paid by your clients.