VAT Rate 2022: How Much Is VAT in the UK?
VAT (Value-Added Tax) is a form of consumption tax in the UK. This tax is levied on the purchase of goods or services and other "taxable supplies". The VAT rate is a certain amount of tax that can be levied on certain goods and services. Different VAT rules apply to charities. Commonly VAT applies to:
● Purchase of goods and/or services
● Rent for property
● Change of the product. For example; Replace the old customer product with a new product
● The sale of company assets
● The sale of business assets
VAT is ultimately a tax that the consumer has to pay and not a tax for individual companies. While companies pay VAT to HMRC, the customer has already paid the actual costs, which are covered by the purchase price of the goods or services purchased. As such, this is an indirect tax, although the companies are responsible for reporting to HMRC.
Chris is an architect. His business is subject to VAT and the services he sells are subject to the standard VAT rate (20%).
· Chris charges his client an agreed price of £ 5,000 + VAT on his services.
· £ 5,000 + (£ 5,000 x 20%) = £ 6,000 in total
· He will keep £ 5,000 for his business, but the £ 1,000 VAT belongs to HMRC and he must declare it in his next VAT return to be paid to HMRC.
VAT Rates 2022
The current VAT rates are:
Note: Certain small businesses with limited expenses and supplies not exceeding GBP 150,000 per year my come under a special flat-rate scheme in which a sector-specific flat VAT rate is applied.
Temporary VAT Reduction Till 2022
In July 2020, the UK government introduced a temporary tax cut rate for the hotel sector to support economic sectors affected by the COVID-19 pandemic.
From 1st October 2021, the government reduced the new VAT rate for hospitality, holiday accommodation, and attractions by 12.5%. This new rate is valid until March 31, 2022. For more information on the new reduced rate, visit the government website.
Where Does the VAT Rate of 12.5% Apply?
Food items, such as food consumed and soft and hot drinks to take with you, are subject to the provisional reduced tax rate of 12.5%. This can also apply to hotel stays and vacation rentals, as well as access to attractions such as theatres, cinemas, concerts, and museums.
Will UK VAT Rates Increase in 2022?
The new wave of COVID-19 was supposed to keep the VAT rate indefinitely, but the government announced that the rate would return to 20% from April 1, 2022.
How to Pay Your VAT Bill?
1. Debit or Credit Card
If you are paying by debit or credit card, you can do so by following the links on your online HMRC account.
2. Online or Telephone Banking
If you pay online or via telephone banking (faster payments, CHAPS, or BACS), here you will find the information about the HMRC bank account on which you need to pay your VAT invoice.
3. Direct Debit
You can create a direct debit account at your HMRC online account and connect it with your bank account. Once you have done it, the payment will automatically be transferred from your bank account, 3 working after the VAT payment deadline days. Make sure you do this at least three business days before filing your VAT return so that the payment is debited from your account on time.
4. At Your Bank or Building Society
To pay through your bank or building society, you must apply for a payslip from HMRC, which can take up to six weeks to receive. Payment vouchers allow you to pay in cash or cheque with "Queen's Revenue and Customs Only" (HMRC) followed by your 9-digit VAT number.
5. Standing Order
If your company uses the annual VAT return, you can pay your VAT with a standing order. You can configure it via the VAT 622 form or via online or telephone banking.
Note: A 9-digit VAT number is required for most payment methods, which can be found on your online account.
Important Points to Understand Before You Submit Your VAT Returns
What is VAT Registration Limit?
Businesses and individuals must register for VAT when they exceed their thresholds.
The current VAT registration limit is £ 85,000/per annum.
How Does VAT Affect my Business?
● You may need to add VAT to your products/services’ prices
● You must send the extra money to HMRC
● You can request a refund of the VAT charged on commercial supplies
VAT On Import
In general, you must pay VAT on goods you import into the UK. This VAT is likely to be added to the price when you pay customs duties. You can usually claim them on your VAT return.
VAT On Export
If you sell goods and services to customers within the EU, you may be required to charge VAT on export. The price depends on what you are selling and who you are selling it to.
What Happens If I Do Not Register for VAT?
Failure to register VAT on time may result in a fine. This will be charged at 5%, 10%, or 15% depending on the time elapsed between the date the threshold was reached and the date HMRC received registration notification. The contractual penalty is 5% for delays of up to 9 months, 10% for up to 18 months, and 15% for more than 18 months.
What is Exempted from VAT?
The VAT rate depends on the type of good or service purchased. Some services and goods are even exempt from VAT, and these are;
● Education or training
● Fundraising for a good cause
● Commercial space for sale or rent
● Postage stamps
● Insurance and financial services
for more details, you can visit gov.UK website.
How Do I Get the VAT Refund?
● Get a VAT Form 407 (NI) from your reseller. They will ask you for proof to check whether you are leaving the country or not. For example, Your passport.
● Complete this form. Only add those items that you bring out of the country. Do not list items that you have left, used or returned.
● Show the products and complete the form when you are leaving.
● Customs will approve your form if everything is clear and accurate.
● To receive payment, you must submit the approved form to the airport tax refund counter or send it to the retailer or refund provider along with proof of travel destination.
What are the Products/Services You Cannot Get a Refund For?
You will not receive VAT refund for:
● Used products, such as Perfume
● Most mail-order goods, including internet sales
● New or used cars
● Service charges, such as hotel bills
● Goods that require an export license
● Goods exported for Business purposes
● Gold or silver over 125g, 2.75 troy ounces
Making Tax Digital (MTD) for VAT
With the launch of the Making Tax Digital (MTD) initiative, VAT-registered businesses with VATable sales over the VAT registration threshold (currently £85,000) are now required to file their VAT returns using MTD-compatible VAT software.
The scope of Making Tax Digital (MTD) for VAT (Value-Added Tax) will expand in 2022. VAT-registered businesses with a taxable turnover below £85,000 will need to follow Making Tax Digital rules for their first VAT return starting on or after April 2022.
VAT Rate In Different Industries in the UK
VAT On Home Sales
If you sell a newly built office building with apartments, you will pay 20% VAT.
VAT on Electricity Bills
For most businesses the VAT on electricity and gas is 20% however, the VAT on domestic energy will cover a tax of 5%, the same tax you pay if you work from home.
VAT On Estate Agent Fees
The average estate agent Fee in the UK is 1.18% including VAT of 1.42%.
VAT On Food
Foods and beverages for human consumption generally have a zero VAT(0%), but some products still have a standard rating (20%). This includes soft drinks, alcoholic beverages, ice cream, crisps and snacks, hot meals, sports drinks, confectionery, hot takeaways, and mineral water.
VAT On Fuel
VAT covers around 16% of the price per litre
VAT On Restaurant Meals
The standard VAT rate on restaurant food is 20%, but currently, restaurant meals are subject to a reduced rate of 12.5%. This temporarily reduced VAT rate of 12.5% applies from 1 October 2021 to 31 March 2022
VAT On Cars
Almost all new cars are subject to 20% VAT, whether pre-purchased, financed, or rented.
VAT On Wine
The wine produced is any alcoholic beverage that is not fermented from beer. You have to pay the standard VAT rate of 20% on these types of products.
VAT On Rent
Rents are generally exempt from VAT.
VAT On Postage Stamp
The digital stamp is a Postage stamp but in digital form. The stamp is part of the universal service of postal law and is therefore exempt from VAT
VAT On Train Ticket
Trains have a zero rating VAT. Therefore, VAT is charged at a rate of 0%.
VAT On Construction Work
Most household and apartment work performed by builders and similar businesses such as plumbers, plasterers and carpenters are charged at the standard 20% rate.
VAT On Milk
Animal milk is charged at 4% VAT, while alternative milk like plant milk is charged at 10%.
VAT On Hotel Room
Hotels generally charge 20% VAT on hotel accommodation in the UK (reduced to 12.5% until 31 March 2022). However, as a business, you can recover all of this VAT if the hotel booking was made in the context of a business trip.
VAT On Insurance
Insurance in the UK is exempt from VAT.
VAT On Cakes
Unlike sweets, cakes are considered a staple food and therefore a VAT rate equal to zero (0%).
VAT On Books
The zero VAT rate applies to printed books and brochures, including atlases. Also includes children's picture books, drawing and colouring books, and music books.