VAT Rate 2023-24: How Much Is VAT in the UK?
Updated: 4 days ago
Introduction
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
● Commission
● 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.
Example:
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 2023
The current VAT rates are:
Note: Certain small businesses with limited expenses and supplies not exceeding GBP 150,000 per year may come under a special flat-rate scheme in which a sector-specific flat VAT rate is applied.
Temporary VAT Reduction Till 2023
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 was valid until March 31, 2022. For more information on the new reduced rate, visit the government website. The extension has been made until 28 February 2023 of the 9% VAT rate that applies to gas and electricity that was due to revert to 13.5% on 1 November 2022.
The Current VAT Thresholds in the UK
In the UK for 2023, the VAT thresholds are as follows:
For registration:
If the total taxable turnover is more than £85,000, it's required to register for VAT.
If goods are brought into Northern Ireland from the EU (referred to as 'acquisitions'), and the value is more than £85,000, it's required to register for VAT.
If goods are sold from Northern Ireland to consumers in the EU (referred to as 'distance selling'), and the total sales across the EU exceed £8,818, it's required to register for VAT in EU countries.
If the taxable turnover for a VAT-registered entity falls below £83,000, there's an option to cancel the VAT registration1.
For VAT accounting scheme thresholds:
The Flat Rate Scheme can be joined if the turnover is £150,000 or less, and must be left if it exceeds £230,000.
The Cash Accounting Scheme and Annual Accounting Scheme can be joined if the turnover is £1.35 million or less, and must be left if it exceeds £1.6 million.
VAT Calculator 2023-24
Here is a comprehensive table of the current VAT rates in the UK for various goods and services:
Part 1
Category | VAT Rate | Details |
General | | |
Standard Rate | 20% | Applies to most goods and services |
Reduced Rate | 5% | Applies to specific goods and services, like children's car seats and home energy etc. |
Zero Rate | 0% | Applies to various goods and services, including period underwear (from 1 Jan 2024) |
Food and Drink | | |
Food and Drink for Human Consumption | 0% | Most items, except certain standard-rated items |
Catering, Alcoholic Drinks, Confectionery | 20% | Includes crisps, savoury snacks, hot food, sports drinks, hot takeaways, ice cream, soft drinks, and mineral water |
Sport, Leisure, Culture, and Antiques | | |
Physical Education and Sports Activities | Exempt | |
Betting and Gaming | Exempt | Includes pool betting and games of chance |
Health, Education, Welfare, and Charities | | |
Admission Charges by Charities | Exempt | |
Advertising Services for Charities | 0% | |
Goods Sold at Charitable Fundraising Events | 0% | |
Charitable Fundraising Events | Exempt | |
Construction and Sale of Buildings for Charitable Purposes | 0% | |
Power, Utilities, Energy Saving, Heating | | |
Electricity, Gas, Heating Oil, Solid Fuel for Domestic/Non-Business Use by Charities | 5% | Fuel for business use is standard-rated |
Cesspools, Septic Tanks (Domestic) Emptying | 0% | Industrial variants are standard-rated |
Water Supplied to Households | 0% | Industrial water supply is standard-rated |
Building and Construction, Land, and Property | | |
Construction of New Buildings for Charitable/Residential Purposes | 0% | |
Renovation of Empty Dwellings (2+ years) | 5% | |
Transport, Freight, Travel, and Vehicles | | |
Aircraft Repair and Maintenance | 0% | |
Freight Transport to/from Outside the UK | 0% | Domestic freight transport is standard-rated |
Houseboat Moorings | Exempt | |
Passenger Transport (10+ Passengers) | 0% | |
Part 2
Printing, Postage, Publications | | |
Brochures, Leaflets, Pamphlets | 0% | |
Public Postal Services by Royal Mail | Exempt | |
Books, Magazines, Newspapers | 0% | |
Clothing and Footwear, Protective and Safety Equipment | | |
Babywear, Children’s Clothes and Footwear | 0% | |
Children’s Car Seats | 5% | |
Cycle Helmets, Motorcycle Helmets | 0% | Protective boots and helmets for industrial use also 0% |
Financial Services and Investments, Insurance | | |
Financial Services and Transactions | Exempt | Includes the issue, transfer, or receipt of money, securities, loans, credit, and similar services |
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.
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 the 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 a 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 2023. VAT-registered businesses with a taxable turnover below £85,000 needed 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 liter
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% applied from 1 October 2021 to 31 March 2022. After that, the rate was restored to 20% which is still applicable in 2023.
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 (which was reduced till 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 rate increased to 9% (from 5%) for hotel accommodation, restaurant and catering services as of Jan 1, 2023
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.
How to Charge VAT in the UK 2023?
In the UK, all VAT-registered businesses are required to charge VAT on the goods and services they sell, unless they are exempt. The process of charging VAT involves several steps, including calculating the VAT-inclusive price, displaying VAT information on invoices, recording transactions in your VAT account, and recording the amount on your VAT return.
VAT Registration
Before you can start charging VAT, you must first register for VAT. Once registered, you are obligated to charge VAT on your goods and services unless they are exempt.
VAT Rates
There are three rates of VAT in the UK: standard, reduced, and zero-rated. The standard rate is currently 20%, the reduced rate is 5%, and the zero rate is 0%. These rates can change, and businesses must apply any changes to the rates immediately from the date they change.
Standard Rate
The standard rate of VAT, currently 20%, is charged on most goods and services. This rate should be used unless the goods or services you sell are classed as reduced or zero-rated.
Reduced Rate
The reduced rate of VAT, currently 5%, is charged instead of the standard rate on certain goods or services, or if the circumstances of the sale meet certain rules. Examples of goods and services that attract the reduced rate include child car seats, domestic fuel or power, and mobility aids for someone over 60 and installed in their home.
Zero Rate
The zero rate is charged on goods and services if you export them, depending on where in the UK you are supplying them from and where they’re going to. Even though the rate is 0%, you must still account for and charge VAT, for example, by including it on your invoices.
Calculating Prices With and Without VAT
VAT-Inclusive Prices
To calculate a price that includes the standard rate of VAT (currently 20%), multiply the price excluding VAT by 1.2. For the reduced rate of VAT (currently 5%), multiply the price excluding VAT by 1.05.
VAT-Exclusive Prices
To calculate a price that excludes the standard rate of VAT (currently 20%), divide the price including VAT by 1.2. For the reduced rate of VAT (5%), divide the price including VAT by 1.05.
Charging VAT in the UK involves understanding the different VAT rates and knowing how to calculate prices with and without VAT. It's also important to keep accurate records of your VAT transactions and to register for VAT if you haven't already done so. By following these guidelines, you can ensure that your business is compliant with UK VAT regulations.
When Not to Charge VAT in the UK 2023
While VAT is a common tax applied to most goods and services in the UK, there are certain situations where you should not charge VAT. These include when dealing with exempt goods or services, goods and services that are 'out of scope', and certain transactions with charities.
VAT Exempt Goods and Services
VAT should not be charged on exempt goods or services. Even though VAT is not charged, transactions involving exempt items should still be recorded in your general business accounts. Examples of VAT-exempt goods and services include financial services, investments and insurance, garages, parking spaces and houseboat moorings, property, land and buildings, education and training, healthcare and medical treatment, funeral plans, burial or cremation services, charity events, antiques, gambling or lottery tickets, and sports activities.
'Out of Scope' Goods and Services
Some goods and services are considered 'out of scope', meaning they are outside the VAT tax system. VAT cannot be charged or reclaimed on these items. Examples include goods or services you buy and use outside of the UK, statutory fees like the London congestion charge, goods you sell as part of a hobby, and donations to a charity if given without getting anything in return.
Charging VAT to Charities
VAT-registered businesses can sell certain goods and services to charities at a zero or reduced rate of VAT. However, it's the responsibility of the VAT-registered business to check the charity's eligibility and apply the correct rate. Community amateur sports clubs do not qualify for VAT reliefs for charities.
To check a charity's eligibility, ask the charity to provide evidence that they're a charity. This can be either their Charity Commission registration number or a letter of recognition from HM Revenue and Customs (HMRC) if they're not registered with the Charity Commission.
You also need to ask the charity to give you a written declaration or certificate confirming it meets the conditions for the particular VAT relief. This declaration must follow a particular format and must be separate from the order form or invoice. You must keep any declarations or certificates for at least 4 years.
Charging VAT on Discounts and Gifts in the UK 2023
Charging VAT on discounts, gifts, and free services can be a complex process due to the different rules that apply. This article provides an overview of these rules to help businesses correctly apply VAT in these situations.
Charging VAT on Discounts
For basic discounts, VAT should be charged on the discounted price. For multi-buy offers where all items have the same VAT rate, VAT should be charged on the combined price. If the items in the offer have different rates of VAT, a method called 'apportionment' should be used.
Link-Save Offers
Link-save offers are where the customer gets a discounted (or free) second item with their purchase. VAT should be calculated using 'apportionment', unless the free or discounted item meets certain conditions, in which case VAT should be charged on the combined value of items.
VAT on Coupons or Vouchers
VAT should not be charged on a money-off coupon or voucher given away free with another item at the time of purchase, or on 'face value' vouchers that can be used for more than one type of good or service (if sold at or below their monetary value). VAT should be charged when a customer uses a 'face value' voucher to buy something.
VAT on Gifts
VAT is not owed on gifts if you're giving away your own goods and services, or if the total value of gifts given to the same person in a 12-month period is less than £50.
VAT on Free Goods and Services
VAT is usually not owed on goods and services given away for free, with certain conditions applying to free samples, free loans of business assets, and free services.
Understanding how to charge VAT on discounts, gifts, and free services is crucial for businesses to ensure compliance with UK VAT regulations. By being aware of the different rules and conditions, businesses can correctly apply VAT and avoid potential legal issues.
Why is it a Good Idea to Get Professional Help from A Tax Accountant to Manage Your Business' VAT
Handling business finances often proves to be a complex task, even for savvy business owners. VAT (Value Added Tax) management, particularly in the UK, can be intricate due to its multifaceted nature and ever-changing regulations. Thus, securing professional assistance from a tax accountant is highly recommended for businesses to maintain financial health and ensure compliance. Here's why it's a good idea.
Keeping Up With Regulations
The UK's VAT laws are regularly updated, reflecting evolving economic and governmental priorities. Not only are these changes frequent, but their interpretation and application can be complex. For a business owner, keeping track of all these modifications and understanding their implications can be overwhelming and time-consuming.
Professional tax accountants, however, are equipped to stay updated with such changes. Their role mandates them to monitor and understand new regulations, ensuring that your business remains compliant. They can efficiently implement these rules in your business, saving you from possible penalties resulting from non-compliance.
Expertise in VAT Planning
VAT planning is a strategic aspect of managing a business's finances. It involves optimizing the VAT status of a business and making prudent decisions about VAT registrations, exemptions, and reclaims.
A seasoned tax accountant has the expertise to provide guidance and help you make informed decisions in this area. They can scrutinize your business model and financial transactions to ensure that you're claiming all the VAT you're entitled to and not paying more than necessary.
Time and Resource Management
Managing VAT obligations requires a considerable amount of time, something that's often in short supply for busy entrepreneurs. Business owners have a plethora of tasks to manage every day, from overseeing operations to building customer relationships.
By outsourcing VAT management to a professional tax accountant, businesses can free up valuable time. This allows them to focus on core areas that drive business growth. Additionally, it reduces the need for in-house resources, thus lowering costs.
Mitigating Financial Risks
One of the major pitfalls of DIY VAT management is the risk of mistakes. These can lead to incorrect VAT returns, late payment fines, and even severe penalties for non-compliance. Such financial risks can disrupt business operations and negatively impact the company's reputation.
Professional tax accountants are adept at managing these risks. Their expertise and knowledge about the latest VAT legislation can ensure accurate and timely submissions of VAT returns, safeguarding businesses from costly errors.
Handling VAT Inspections
HM Revenue & Customs (HMRC) conducts periodic checks on businesses to verify VAT compliance. These inspections can be daunting for those unfamiliar with the process and can lead to penalties if any irregularities are found.
A tax accountant can make these inspections stress-free. They can represent your business during the inspections, answer any queries that HMRC has, and ensure that all the documentation is in order. In case of any disputes, they can provide valuable support and guidance.
Conclusion
VAT management in the UK requires a deep understanding of the taxation system and its intricate regulations. Hiring a professional tax accountant can save businesses time and money, ensure compliance with VAT laws, and offer peace of mind. While it may seem like an added expense initially, the long-term benefits in terms of risk mitigation, time management, and resource allocation make it a worthy investment.