How much is VAT in UK?

Value Added Tax (VAT) is a consumption tax that is levied on goods and services in the United Kingdom. It is an indirect tax, meaning that it is collected by businesses on behalf of the government. VAT is added to the price of most goods and services, and the standard rate of VAT in the UK is currently 20%.

What is VAT?

VAT is a tax that is added to the price of goods and services at each stage of production and distribution. It is ultimately borne by the final consumer, but it is collected and remitted to the government by businesses. VAT is a significant source of revenue for the UK government, and it helps fund public services and infrastructure.

Standard Rate of VAT

The standard rate of VAT in the UK is currently 20%. This means that for most goods and services, an additional 20% of the price is added as VAT. For example, if you purchase an item for £100, the VAT added would be £20, making the total price £120.

Reduced Rate of VAT

There are certain goods and services that qualify for a reduced rate of VAT in the UK. Currently, the reduced rate is 5%. This rate applies to items such as children’s car seats, domestic fuel and power, and sanitary products. It is important to note that not all goods and services are eligible for the reduced rate, and it is always best to check with the HM Revenue and Customs (HMRC) for the most up-to-date information.

Zero Rate of VAT

Some goods and services are exempt from VAT altogether, meaning that no VAT is added to their price. This is known as the zero rate of VAT. Examples of goods and services that fall under the zero rate include most food items, books, newspapers, and public transport. Again, it is advisable to consult the HMRC for a comprehensive list of zero-rated goods and services.

Registering for VAT

Businesses that have an annual turnover above a certain threshold are required to register for VAT. As of 2021, the threshold is £85,000. This means that if a business’s annual turnover exceeds £85,000, they must register for VAT and charge VAT on their goods and services. However, businesses with a turnover below the threshold can choose to register voluntarily.

Benefits of VAT Registration

There are several benefits to registering for VAT, even if a business’s turnover is below the threshold. Firstly, registered businesses can reclaim the VAT they have paid on their purchases, which can help reduce costs. Secondly, being VAT registered can enhance a business’s credibility, as it demonstrates that they have reached a certain level of turnover. Finally, VAT registration allows businesses to trade with other VAT-registered businesses within the European Union.

Conclusion

VAT is an important tax in the UK that is added to the price of most goods and services. The standard rate of VAT is 20%, but there are also reduced and zero rates for certain goods and services. Businesses with a turnover above £85,000 are required to register for VAT, but there are benefits to voluntary registration as well. It is essential for businesses and consumers to understand VAT and its implications to ensure compliance with the law.