How Much is the VAT in UK: An Informative Guide to the VAT Rates for 2023-2024

How Much is the VAT in UK: An Informative Guide to the VAT Rates for 2023-2024

If you live in or do business in the United Kingdom, you have probably heard of Value Added Tax (VAT). It is a consumption tax that is levied on goods and services at every stage of production and distribution. The purpose of VAT is to generate revenue for the government and help in the funding of public services such as healthcare and education. According to the HMRC (Her Majesty’s Revenue and Customs), the current standard rate of VAT in the UK is 20%.

In this blog, we will explore the basics of VAT in the UK and provide information on the current and future VAT rates for 2023-2024.

What is VAT?

Value Added Tax (VAT) is a consumption tax that is applied to most goods and services sold in the UK. It is also sometimes referred to as ‘output tax’ because businesses are responsible for collecting VAT from their customers and then paying it to the government. The standard rate of 20% applies to most goods and services, but some items are exempt from VAT or have a reduced rate.

Furthermore, businesses that have a turnover of more than £85,000 are required to register for VAT and charge it on their sales. Those with a lower turnover can choose to register for VAT voluntarily. This is known as ‘voluntary registration’, and it allows businesses to reclaim the VAT they pay on their purchases.

Current VAT Rate UK 2023

VAT Rates in 2023 are subject to change every year. The current VAT rate in the UK is set at 20% and has been since 2011. However, this may change in the future as the government adjusts VAT rates to meet economic goals.

Some goods and services that have a reduced rate of 5% include:
  • Domestic heating fuel
  • Energy-saving materials
  • Women’s sanitary products
  • Children’s car seats
Some goods and services that are exempt from VAT include:
  • Education and training
  • Health and medical services
  • Insurance, finance, and credit transactions

You can find a full list of items with reduced or zero-rated VAT on the UK government website.

HMRC VAT Rate 2023-2024

The HMRC (Her Majesty’s Revenue and Customs) is responsible for determining VAT rates in the UK. In 2023-2024, there may be changes to the VAT rate as the government makes adjustments to meet economic goals. These rates will be announced in the annual budget and will go into effect on April 1st of each year.

For small business owners, it is important to stay updated on changes to the VAT rate, as it can affect your prices and cash flow. You can find updates and information on VAT rates for 2023-2024 on the HMRC website or by consulting with a tax advisor.

Individuals and businesses can also apply for VAT refunds on certain items, such as business expenses incurred while traveling abroad. It is important to keep detailed records and receipts to support these claims.

Following are the current VAT rates for 2023-2024:
  • Standard rate: 20%
  • Reduced rate: 5%
  • Zero rate: 0%

Present VAT Thresholds in the UK

As mentioned earlier, businesses with an annual turnover of £85,000 or more are required to register for VAT. However, there are different thresholds for specific types of businesses:

  • If you sell goods and your turnover exceeds £85,000 in a 12-month period, you must register for VAT.
  • If you buy and sell goods outside the UK and your turnover exceeds £85,000 in a 12-month period, you must register for VAT.
  • If you are an EU business selling goods to UK customers and your turnover exceeds £70,000 in a 12-month period, you must register for VAT.
  • If you are a non-EU business selling goods to UK customers and your turnover exceeds £70,000 in a 12-month period, you must register for VAT.
  • If you are a non-EU business providing services to UK customers and your turnover exceeds £85,000 in a 12-month period, you must register for VAT.
  • The threshold for businesses that provide digital services to UK customers is £85,000.

How Do I Get the VAT Refund?

It is the responsibility of businesses to collect VAT from their customers and pay it to the HMRC. However, businesses can also claim back any VAT they have paid on purchases made for business purposes.

To get a VAT refund, you must be registered for VAT and have the necessary documentation, such as invoices and receipts. You can then submit a VAT return through the HMRC website or using accounting software.

Following are the current VAT rates for 2023-2024:
  • Keep detailed records and receipts of all business purchases.
  • Submit your VAT return on time to avoid penalties.
  • If you are unsure about the VAT rules, consult with a tax advisor or contact the HMRC helpline for assistance.

Remember, VAT is an important tax to consider when doing business in the UK. Understanding the current and future VAT rates can help you make informed decisions and stay compliant with HMRC regulations. Stay updated on changes to the VAT rate and thresholds, and don’t hesitate to seek professional advice if needed.

Applicability of the 12.5% VAT Rate

Many people are wondering if the UK government will introduce a lower VAT rate of 12.5% for certain goods and services in the future. The 12.5% rate is often referred to as the ‘tourism VAT’ and is currently applied in other EU countries such as Ireland, Spain, and Italy.

While there has been discussion about introducing a lower VAT rate for the hospitality and tourism industry, there is no confirmation yet. The decision to introduce a new VAT rate would also depend on the economic situation and government priorities at the time.

Methods of Settling Your VAT Dues

How Much is the VAT in UK: An Informative Guide to the VAT Rates for 2023-2024

There are different methods businesses can use to settle their VAT dues to the HMRC. These include:

Direct Debit: This is the most popular method where you authorize the HMRC to collect your VAT payments directly from your bank account.

Online or telephone banking: You can also make a one-time payment through online or telephone banking using your VAT registration number as a reference.

Debit or credit card: You can also make a one-time payment using your debit or credit card through the HMRC website.

Bank transfer: You can also make a bank transfer using your VAT registration number as a reference.

Cheque: You can also send a cheque to the HMRC with your VAT registration number written on the back.

It is important to ensure that your VAT payments are made on time and using the correct method. Failure to do so may result in penalties or interest charges from the HMRC.

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Key Concepts to Grasp Prior to Filing Your VAT Returns

VAT, or Value Added Tax, is a consumption tax that is applied to goods and services in the United Kingdom. It is an indirect tax, meaning it is ultimately paid by the end consumer of the product or service. VAT was introduced in 1973 as part of the UK’s membership with the European Union (EU) and has since become a significant source of revenue for the government.

Now, it is essential for businesses to understand the following key concepts prior to filing their VAT returns:

How Much is the VAT in UK: An Informative Guide to the VAT Rates for 2023-2024

Taxable Supply

A taxable supply is any sale of goods or services that are subject to VAT. This includes both standard-rated and reduced-rated items, as well as zero-rated and exempt supplies.

Output Tax

Output tax is the amount of VAT a business charges on its sales or services. This is calculated by multiplying the total value of taxable supplies by the applicable VAT rate.

Input Tax

Input tax is the amount of VAT a business pays on its purchases or expenses. This can be reclaimed from the HMRC as long as it relates to taxable supplies and the necessary documentation is provided.

Net Tax

Net tax is the difference between output tax and input tax. If the output tax is higher than the input tax, the business must pay the difference to the HMRC. If the input tax is higher than the output tax, a refund can be claimed from the HMRC.

VAT Rate In Different Industries in the UK

The VAT rate applied to goods and services can vary significantly depending on the industry. Certain goods and services are zero-rated, meaning they are taxable at a rate of 0%, such as most food items, children’s clothing, and prescription medications. There are also reduced rates, standard rates, and some items that are exempt or outside the scope of VAT entirely.

For example, welfare and health-related services often benefit from reduced rates or exemptions, reflecting their essential nature. Energy-saving materials and utilities for domestic use also attract favorable VAT treatment to encourage their use and support environmental sustainability.

Here’s a breakdown of major industries and their respective VAT rates:

  1. Food and Drink: Zero-rated for most human consumption but standard-rated for catering, alcohol, confectionery, and hot food. Restaurants charge VAT on-premises dining and hot takeaways, while cold takeaways may be exempt unless consumed on designated premises​.
  2. Sport: Physical education and sports activities are exempt from VAT, which includes services provided by sports coaches and gym memberships​1​.
  3. Leisure: Betting, gaming, bingo, and lotteries are exempt from VAT. This includes games of chance and retailer commissions on lottery ticket sales​1​.
  4. Culture: Admission charges by public authorities or eligible cultural bodies to certain cultural events, such as museums and performances, are exempt from VAT​1​.
  5. Antiques: Sales of antiques, works of art, or similar items as assets of historic houses to public collections or used to settle tax debts with HMRC are exempt from VAT​1​.
  6. Charities: Admission charges by charities, certain goods sold at fundraising events, and construction of new buildings for charitable purposes are zero-rated or exempt. Voluntary donations are outside the scope of VAT​1​.
  7. Welfare: Building services for disabled people are zero-rated. Burial, cremation, and funeral plans under insurance contracts are exempt, and mobility aids for the elderly are subject to a reduced rate of 5%​1​.
  8. Health: Care or medical treatment by qualifying institutions and health services by registered professionals are exempt. Prescription dispensing and other medical aids like incontinence products, maternity pads, and low vision aids are zero-rated​1​.
  9. Education: Education, vocational training, and connected services provided by institutions such as schools, colleges, or universities are exempt from VAT​1​.
  10. Power and Utilities: Domestic electricity, gas, and heating oil for charities are reduced by 5%. Water supply and sewerage services for households are zero-rated, but industrial provisions are standard-rated​1​.
  11. Transport: Aircraft repair and maintenance are zero-rated, encouraging the aviation industry by relieving these services from VAT​.
  12. Freight: International freight transport and related container sales, leases, or hires to places outside the UK and EU are zero-rated, which facilitates global trade operations​1
  13. Travel: Houseboat moorings are exempt from VAT, which supports alternative living and tourism, while passenger transport in larger vehicles or vessels is zero-rated, promoting public transportation​.
  14. Vehicles: The sale or charter of various vehicles, including airships and larger caravans, is zero-rated or reduced-rated, providing an incentive for the transportation and tourism sectors​.
  15. Printing: Brochures, leaflets, and pamphlets are zero-rated, which benefits marketing and information dissemination activities​.
  16. Postage: Direct-mail postal services meeting certain conditions are outside the scope of VAT, whereas public postal services by Royal Mail under a universal service obligation are exempt, ensuring accessibility to basic postal services​.
  17. Publications: Books, children’s picture books, maps, charts, and newspapers are zero-rated, thus supporting education and the dissemination of information​.
  18. Clothing and Footwear: Babywear and children’s clothes and footwear are zero-rated, reducing the cost burden on families for essential items​.
  19. Protective and Safety Equipment: Certain safety equipment, such as children’s car seats and motorcycle helmets, are zero-rated or have a reduced rate, emphasizing the importance of safety.
  20. Financial Services and Investments: A range of financial services, including the management of credit and the provision of loans, is exempt from VAT, which is critical for the functioning of the financial sector​
  21. Insurance: Insurance transactions and services provided by brokers and agents are exempt from VAT, which reduces the cost of obtaining insurance for consumers and businesses​.

Products Services You Cannot Get a Refund For?

While the majority of goods and services fall under some form of the VAT rate, there are certain products or services that do not qualify for a refund. These include:

  • Gambling activities such as lotteries, bingo, and betting
  • Insurance transactions and services provided by brokers and agents
  • Postal services provided by Royal Mail
  • Financial services, including loans, credit management, and investments.

Goods and Services that are VAT Free

VAT or Value Added Tax is a consumption tax charged on most goods and services in the UK. It is governed by HM Revenue and Customs (HMRC) and collected by businesses on behalf of the government. However, not all goods and services are subject to VAT in the UK.

Some of the most common items that are exempt from VAT include:

  • Food, Milk, and drink for human consumption (with some exceptions)
  • Education and training
  • Books, newspapers, magazines, and journals
  • Children’s clothing and footwear
  • Medical equipment and supplies for disabled people
  • Some types of insurance, such as life insurance
  • Public transport services

The VAT rate in the UK is currently set at 20% for most goods and services. However, there are reduced rates or exemptions for certain categories of goods and services.

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Conclusion

The VAT rate in the UK is a complex system that helps fund government services while balancing the affordability of goods and services for consumers. Understanding which goods and services are subject to VAT can help individuals and businesses better manage their finances. It is always important to consult with HMRC or a tax professional for specific guidance on VAT rates and exemptions.  So, if you are planning to start a business or simply want to know how much the VAT is in the UK, make sure to do your research and stay informed. Proper knowledge of VAT rates can help you save money and avoid any potential trouble with tax authorities.

FAQs

Ans 1: As of 2021, the standard VAT rate in the UK is currently set at 20% for most goods and services. However, there are reduced rates or exemptions for certain categories of goods and services.

Ans 2: The current VAT rate in England is 20%, but some goods and services have a reduced rate or are exempt from VAT.

Ans 3: If you are a business and your taxable turnover is more than £85,000, you must register for VAT. Failure to do so can result in penalties and interest charges.

Ans 4: Some goods and services that are exempt from VAT include food, education and training, books, children's clothing and footwear, medical equipment for disabled people, and public transport services. For a comprehensive list, it is best to consult with HMRC or a tax professional. 

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