VAT Rate In The UK

Understand VAT Rate in the UK: An Easy-to-Understand Guide

You've come to the right site if you're interested in learning more about UK VAT Rate. We'll go over the current VAT rates, who they apply to, and any exciting updates to the VAT system in this blog article. Grab a cup of tea, settle in, and let's get started!

Purpose of VAT in the UK

In the United Kingdom, the majority of products and services sold for domestic use are subject to value-added tax (VAT). It serves as a tool for the country's consumption to be taxed while also increasing government revenue. 

The tax system is also standardized and made simpler by the usage of VAT, which makes it simpler for enterprises to comply with their tax duties and lessens the administrative burden on government organizations.

For example, a bakery selling a loaf of bread for £1 has to pay £0.20 VAT to the government, but can also reclaim it as input tax. This helps businesses by allowing them to reclaim the VAT they paid and encourages economic growth. Use UK VAT calculator to calculate vat on products easily with more accurate result.

History of VAT rates in the UK

The introduction of VAT as a component of the country's indirect taxation system in 1973 is when the UK's history of VAT rates began. The initial standard VAT rate was 10%, although it has since been altered multiple times. 

Current VAT rate in the UK

Extension of the 9% VAT rate on gas and electricity until February 28, 2023. On November 1, 2022, the rate was supposed to go back to 13.5%.

Newspapers and defibrillators will be subject to 0% VAT as of January 2023, down from 9% and 23%, respectively. A small number of period products, nicotine replacement therapies, and hormone replacement therapy will also be subject to VAT at 0%.

A second sad development for the hospitality industry is that the Minister announced that the 9% VAT rate will not be maintained after the anticipated date of February 28, 2023.

Did you know?

Some individuals mistakenly believe that goods that are exempt from VAT do not have VAT added in their pricing when, in fact, the VAT may still be there.

Exempt VAT rate

On January 4, 2011, the standard rate of VAT increased from 17.5% to 20%. Postage stamps, financial transactions, and real estate transactions are some items that are not subject to VAT.

UK VAT Partial Exemption

When a company produces both taxable and exempt goods and services and its taxable sales are below the level for VAT registration, the company may elect to register for VAT and only report the VAT on its taxable sales. can get the VAT on connected purchases returned. Rules and regulations must be understood by business.

For example business sells exempt (books) and taxable (coffee) supplies. Taxable supplies are below VAT reg. threshold (£80k). Businesses can register for VAT and only pay VAT on taxable coffee sales and claim back VAT on related purchases.

Historical VAT rate changes in the UK

The VAT rate in the UK has seen some significant modifications, including:

  • 1991: Increase in the standard VAT rate from 15% to 17.5%.
  • 2008: The UK government temporarily lowered the standard rate of VAT from 17.5% to 15% in response to the world financial crisis.
  • 2010: Increase in the normal VAT rate from 15% to 17.5%.
  • 2011: Increase in the standard VAT rate from 17.5% to 20%.
  • 2020: The UK government temporarily lowered the usual rate of VAT for some industries, including the hospitality and tourism sectors, from 20% to 5% in response to the COVID-19 epidemic.
  • 2021: The Chancellor announced an additional extension of the relief, extending the use of the 5% VAT rate through September 30, 2021.
  • 2022: As intended, the VAT rate returned to 20% on April 1, 2022.

The UK's VAT rate varies for a variety of reasons, including economic stability, income generation, economic change, comparisons to other countries' VAT rates, and political concerns. The rate is changed by the government to preserve economic viability, encourage expenditure, foster economic expansion, and boost income.

Did you know?

Some individuals mistakenly think that the UK has a single, fixed VAT rate while there are really a number of different VAT rates that can be applied to various goods and services.

VAT Refund

When you purchase something while visiting the UK, you may be eligible for a VAT refund if:

  1. You are returning home from living outside of the EU.
  2. You live in the EU and will be gone for at least a year.
  3. You attend employment or school in the UK but don't live in the EU and will be gone for at least a year.

You have two options for getting paid for the refund: either you can do it right once at an airport refund counter, or you can send the completed form to a company that handles refunds.

Getting VAT refund in 3 simple steps:

1. A request form
Ask the shop for a Tax Refund Application Form (VAT 407). A request for your passport may also be made to verify your eligibility.

2. Checks at customs
Present your passport, the applicable VAT form(s), VAT invoice(s), and the tax-free items at customs.

3. Approved refund
If all the requirements are satisfied, customs will accept your form. A completed paperwork allowing you to claim the refund will be given to you.

VAT compliance in the UK

Whether your imports or taxable supplies total more than £85k, or if you're supplying the EU or producing exempt supplies, you must register for VAT.

Keep thorough records of your taxable sales and purchases, and send HMRC your VAT returns on time (typically every quarter).

Penalties for failing to register, file accurate returns, and maintain records. VAT late payment interest. VAT fraud may result in criminal prosecution and prison time.

Reclaim VAT

You may be entitled to recover the VAT you paid on purchases made for business usage if your company is registered for VAT. This is known as "input tax." "Output tax" refers to the VAT amount that you have accrued through the sale of your goods and services.

You will be responsible for the difference when HMRC subtracts the "input tax" from the "output tax" for a given time period. You should be qualified for a reimbursement from HMRC if you paid more VAT than you were able to recoup.

You must save all invoices you receive in order to file your claim. Remember that the invoices had to be generated by another VAT-registered company as well.

Wrapping it up

This concludes the blog topic on UK VAT Rates. We sincerely hope that it was clear and helpful to you. Additionally, remember that maintaining compliance requires remaining up to date on VAT rules and regulations. Gratitude for reading!

Rían Doyle

I'm a VAT professional with years of experience helping businesses with compliance and reporting. My goal is to simplify VAT calculation and provide valuable insights through my engaging writing style and clear explanations of complex concepts.