Know Your VAT Implications
The standard Value Added Tax (VAT) rate in the UK is 20%, which applies to most goods and services. There are also two other rates: a reduced rate of 5% and a zero rate of 0%.
The standard Value Added Tax (VAT) rate in the UK is 20%, which applies to most goods and services. There are also two other rates: a reduced rate of 5% and a zero rate of 0%.
UK VAT Rates
The rate of VAT that businesses must charge depends on the goods or services they provide.
| Rate | VAT % | Applies to |
|---|---|---|
| Standard | 20% | Most goods and services, such as adult clothing, electronics, and professional services. |
| Reduced | 5% | Some goods and services, for example, children’s car seats, domestic fuel and power (gas and electricity), and certain energy-saving home improvements. |
| Zero | 0% | Zero-rated goods and services include most food items, children’s clothing and footwear, books, newspapers, and public transport fares. |
Note that zero-rated goods are still considered “taxable” for VAT purposes, but the rate of tax is 0%. This is different from VAT-exempt items (such as postage stamps, education, and financial services), for which no VAT is charged and which do not count towards a business’s taxable turnover threshold.
You can find detailed information on which rates apply to specific goods and services on the UK government’s VAT rates guidance page.
The Different Types of VAT Schemes
Do a Cost-Benefit Analysis
There are several different types of VAT schemes in the UK. The one you join will determine how you calculate VAT and how often you file your VAT return with HMRC.
Standard VAT accounting
This involves recording VAT on purchases and sales based on the date of the invoice and not the actual payment date
VAT Flat Rate Scheme
This scheme is one of the easiest to get to grips with and has less paperwork than the others.It’s designed for small businesses with an annual turnover of under £150,000, excluding VAT
VAT Annual Accounting Scheme
The VAT Annual Accounting Scheme allows you to make advance payments for nine monthly instalments or three payments every quarter
VAT Cash Accounting Scheme
With this scheme, the transactions on the VAT return are based on the payment date, not the invoice date
VAT Margin Scheme
The VAT Margin Scheme taxes the difference between what you’ve paid for an item and what you sold it for. This is good for second-hand goods.
VAT Retail Schemes
There are also three types of VAT Retail Schemes for businesses that sell goods. These schemes make it easier to calculate how much VAT you must record.