UK VAT rate changes for 2021

Updated on June 28, 2022

The Brexit transition period concluded on January 1, 2021, and with it came some changes to the VAT system in the United Kingdom. Here’s everything you need to know about this year’s VAT adjustments in the UK, including current rates, requirements, and how to figure out how much you owe.

How much is VAT in the UK?

To begin, we’ll examine the current VAT rates in the United Kingdom. Depending on the type of goods and services sold, there are three distinct VAT rates that may apply.

Standard UK VAT rate

The standard rate is 20%, which applies to the vast majority of goods and services. This includes any items sold between Northern Ireland and non-VAT registered EU clients below the distance selling barrier.

Reduced UK VAT rate

The lower rate is 5% and only applies in certain circumstances. Here are a few instances of lower rate transactions:

Car seats for children

Domestic energy and fuel

Mobility aids for the elderly

Zero UK VAT rate

The final option is the Zero rate, which implies you will charge your consumer 0% VAT. These items, however, must be disclosed on your VAT return. The following are some examples of zero-rated items:

The final option is the Zero rate, which implies you will charge your consumer 0% VAT. These items, however, must be disclosed on your VAT return. The following are some examples of zero-rated items:

2021 VAT changes UK

How have the regulations changed since the beginning of the year, now that we’ve looked at the rates? For starters, HMRC has changed ecommerce by requiring online marketplaces to collect VAT on certain transactions. Here are some of the most significant VAT-related ecommerce rule changes:

Imported items supplied online to UK clients no longer qualify for a £15 VAT exemption. Instead, all imports are subject to the usual UK VAT rate of 20%.

On imported sales under £135, sales or supply VAT must be applied at the point of sale. This reduces the amount of paperwork required by customs when the commodities arrive.

On behalf of their third-party vendors, online marketplaces are now accountable for VAT requirements. This includes any sales within the UK by overseas third-party vendors, as well as any imported transactions worth under £135.

These revisions aim to simplify the customs process for imported goods while also eliminating the VAT exemption on low-cost imports, which disadvantages UK retailers.

Northern Ireland and VAT reforms

The laws are slightly different in Northern Ireland because the country is split between the EU and UK VAT regimes. There are two major distinctions to keep in mind:

EU VAT laws apply to products transported from Northern Ireland vendors to EU buyers.

If an overseas vendor desires to sell Northern Irish items to a Northern Irish customer via an online marketplace, the seller, not the online marketplace, is responsible for VAT reporting.

Charging VAT on exports to the EU

Are you unsure how to calculate VAT in the UK if you’re selling items to EU customers? The good news is that VAT-registered UK businesses will continue to be able to sell zero-rated items to EU clients. From January 1, 2021, EU member states will regard these commodities the same as goods entering from any other non-EU country, imposing import tariffs when they arrive.

When selling services rather than goods, UK providers will now be considered the same as any other non-EU supplier. This means they’re bound by “place of supply rules,” which normally apply to the customer’s location. When calculating VAT UK on services for EU clients, keep in mind that these taxes are normally due in the client’s home country.

The bottom line

Ecommerce and online marketplaces are the areas where the most significant developments are taking place. Based on factors such as the size and location of your firm, as well as how much VAT you are charged, you will have a different response to “How much VAT is in the United Kingdom?” It’s always a good idea to seek the advice of a tax expert if you have any questions about these regulations.

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