What rate of VAT should you charge?

Updated on June 7, 2022

There are some sales that aren’t subject to VAT, and even those that are don’t all have the same VAT rate!

“Subject to VAT” sales simply imply that the company making the sales is VAT-registered, in which case they will charge output VAT to their clients at the relevant rate. Businesses who aren’t VAT-registered don’t charge customers VAT on any of their sales.

What are the different rates of VAT?

Standard rate

The typical VAT rate in the United Kingdom is 20% on most purchases of goods and services. Our UK tax rate tracker has the most up-to-date information, including the normal VAT rate. FreeAgent’s digital VAT software provides access to historical rates if you’re catching up on your bookkeeping.

The usual rate of VAT on food and drink is often a source of misunderstanding. Despite the fact that food and drink are often exempt from VAT, there are numerous exceptions to this rule. Among them are:

serving hot meals to guests (including hot takeaways)
Snacks like potato chips, candy, and ice cream are common.
Intoxicating beverages
colas and other nonalcoholic beverages
Athlete’s aid

Reduced rate

VAT is charged at a reduced rate of 5% on a limited number of goods and services. Domestic gas and electricity, child car safety seats, and goods to help individuals quit smoking are among the commodities included in this category

Zero-rated

Several goods and services are zero-rated for VAT, meaning that no VAT is paid or reclaimed. The fact that certain goods and services are still liable to VAT, even though the VAT rate is zero, should not be overlooked.

Some zero-rated goods and services are:

clothing for babies and children
Travel costs like plane and rail tickets can be found in books, magazines and newspapers.
There are a few irregularities to be aware of in this list, despite how simple it appears. There is a temptation to think that printing letterheads and posters is similarly zero-rated because printed stuff is zero-rated. However, it’s a standard-rated product. Parking tickets are another prominent example. Even while most travel is exempt from VAT, parking tickets are not.

Using HMRC’s website or contacting your accountant is the best way to find out the applicable VAT rate for a particular product or service.

Our VAT calculator can help you figure out how much VAT you’ll have to charge once you’ve determined the rate at which you’ll be charging.

What are VATable sales?

All sales of goods and services with a VAT rate of standard, reduced, or nil are considered VATable sales. Your annual sales must be totaled in order to determine if they exceed the VAT limit (currently £85,000), and this includes all of your sales regardless of VAT rate (including zero-rated).

Zero-rated sales are not exempt from VAT, so don’t be tempted to exclude them from your VAT calculations. Make sure to keep in mind that zero-rated purchases are still taxed at zero percent! VAT-exempt sales are those that can be excluded from taxation.

VAT registration is required if you make more than the VAT threshold or if you’re nearing it.

What are VAT-exempt sales?

A sale that is exempt from VAT is not the same as a sale that is not rated at all.

While zero percent VAT is charged on zero-rated sales, there is no VAT charged at all on VAT-exempt purchases.

Zero-rated sales should be included in your VATable sales totals, but exempt sales should be excluded from your VATable sales totals.

You won’t be able to register for VAT if you only ever make sales that are exempt from VAT.

Exempted from VAT are items such as:

medical care supplied by a hospital, hospice, or nursing home, as well as health services offered by physicians, dentists, opticians, pharmacists, and the like.
stamps for the purpose of paying postage
insurance
Television gambling license fees
financial products and services, such as loans, deposits, and stockholders
Then again, what’s this? Here, too, there are some oddities! For example, pharmacists’ services are VAT-exempt, but prescriptions they dispense are zero-rated. If you’re unsure, always consult with HMRC or your accountant.

What’s outside the scope of UK VAT?

To this list, we should add sales that are not subject to the UK VAT system at all.

This category includes some sales to international customers, as you might expect, but it also includes some services provided in the UK. For example, VAT does not apply to the sale of vehicle MOTs.

When calculating whether or not you need to register for VAT, don’t include sales that aren’t subject to UK VAT, just like with VAT-exempt ones.

VAT has a lot of quirks, as you’ve already noticed, which makes it a difficult region to understand. When it comes to VAT rates, it pays to be very vigilant and to always accept professional guidance!