If you’re buying any goods or services in the UK, the chances are that you’ll pay some Value Added Tax (VAT). Companies add VAT to the price they charge for goods and services to both business and non-business customers.
For example, a clothing manufacturer would add VAT to the prices they charge a store whilst an electrical retailer includes VAT in the prices they charge you when you buy a TV or other appliance.
How Much Is VAT?
There are currently three rates of VAT in the UK depending on the specific type of good or service that is being provided. These rates are:
- Standard rate (20 per cent)
- Reduced rate (5 per cent)
- Zero rate (0 per cent)
Standard rate VAT – 20 per cent
The standard rate of VAT is charged on the majority of goods and services in the UK. Most items that attract VAT will have the tax charged at 20 per cent.
For example, if the net price of a television is £300, VAT will then be added at 20 per cent (£60). The price you pay will be £360.
Reduced rate – 5 per cent
Some goods and services in the UK attract VAT at a reduced rate of 5 per cent. Such items include:
- Children’s car seats
- Sanitary hygiene products
- Energy saving materials for installation (solar panels, insulation etc)
- Domestic fuel/power (gas and electricity etc)
Zero rate – 0 per cent
There are a number of items in the UK that are ‘zero rated’, meaning that no VAT is payable on these items. Examples of zero rated goods and services include:
- Most food (excluding hot takeaways or meals in restaurants and other items such as confectionery, ice cream, crisps, alcoholic drinks)
- Public transport
- Children’s shoes and clothes
- Donated goods bought from charity shops
Why Don’t Some Businesses Charge VAT?
You may find that you don’t pay any VAT when you buy certain goods or services from small businesses. This is because businesses that have a turnover of less than £73,000 do not have to register for VAT.
If the turnover of a business’ VAT taxable goods and services supplied within the UK for the previous year is more than the current threshold of £73,000 (or the business owner expects it to go over that figure in the next 30 days) they must register for VAT.
If a business has a turnover under £73,000 then you may not have to pay VAT on the goods or services you purchase.