For sellers entering the UK market, the most urgent issue is figuring how much is VAT in UK for the goods or services they provide. In this article, we will discuss the most common VAT questions that arise for businesses operating in the UK as well as the most discussed VAT exemptions in the country.
There are three types of VAT in the UK: standard VAT, reduced VAT and zero rate VAT. The standard VAT rate in the UK is 20%. Before 2011, when this rate increased, the standard VAT was 17.5%.
The VAT checker UK business can use for a simple online VAT lookup is provided by the HMRC at the government’s official website. There, everyone can check all existing VAT reduction and exemption notices applicable to businesses in the UK.
The reduced rate in the UK is 5%, and it is applied to some of the economic activities. These activities are usually encouraged by the government and include selling such goods like mobility aids for the elderly, children’s car seats and similar.
Reduced VAT is sometimes applied in extraordinary circumstances. Recently, as a response to the COVID-19 pandemic, 5% VAT was applied to businesses within the hospitality and cultural attractions sectors. Some of the organizations that benefited from this VAT reduction were zoos, cinemas, restaurants, pubs and hotels.
Most food and drink product sellers are subject to the zero VAT rate. However, this rule has a lot of exceptions.
Some food and drink items are standard rated. These products include alcoholic drinks, candy, savoury snacks, soft drinks, ice cream and others. It can get a little tricky: for example, cakes are zero-rated, and biscuits are standard rated. Similarly, even zero-rated food is sold with VAT for eating inside the café or a restaurant.
Digital services and goods is another quite complex VAT issue for businesses in the UK. Standard VAT rate applies for most of the digital goods and services, yet in many cases, the catch for online items is whether they have been sold in the UK or abroad. For B2C sales, the place of supply is the UK whenever the business is not established in any of the EU countries, and the total value of cross-border sales is less than £8,818 in the current and previous year.
Try our free tools to check the validity of the VAT number and calculate the VAT amounts
Health and education activities in the UK are mostly VAT exempt. Exempt services include all medical care operated by registered health professionals as well as all education provided by an eligible body (school, college, or university). When it comes to health-related goods, most of them fall under the zero rate VAT, with some exceptions for sanitary protection products that are subject to reduced 5% VAT.
Most clothes and accessories are subject to standard VAT. Zero rate VAT is nevertheless applied to babywear as well as children clothes and footwear. Such essential safety-ensuring accessories like cycle helmets are also under VAT reduction with zero rate VAT applicable.
Small enterprises with an expected turnover of less than £150,000 can choose to account for VAT under the flat rate scheme. These companies charge a fixed reduced VAT and decide not to submit their VAT returns. Flat VAT rate varies depending on the type of economic activity. Exceptions are applied for companies that are considered to be limited costs businesses, with their costs below 2% of their annual turnover. Such enterprises pay an increased flat rate of 16,5%.
The European Commission provides the VAT checker UK companies can use to see the VAT rates in the member states of the European Union. It is a frequently updated document with the current national VAT rates.
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