Understand the three UK VAT rates and when they apply depending on the type of product or service being sold.
Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
1. What are the VAT Rates?
When a UK business is registered for VAT, they need to begin charging VAT to everything they sell at one of three different VAT rates. The rate they need to use depends on the product or service they are supplying:
|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|
1.1 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.
1.2 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.
1.3 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
2. VAT Exempt
VAT exempt sales are items that a business sells but are not considered a taxable supply. That means they are outside the scope of VAT, do not attract any VAT and do not need to appear on a VAT return. For this reason, businesses that supply VAT exempt products or services cannot register for VAT so cannot claim back VAT on expenses.