How Much VAT is Charged in the UK?

September 7, 2024

Value Added Tax (VAT) is a consumption tax that businesses must charge on the majority of goods and services they sell. The tax is applied at various rates depending on the type of product or service. As a business, understanding how much VAT to charge is essential for compliance with HMRC regulations This article will help you navigate the various VAT rates in the UK, ensuring you are informed and compliant.

What is VAT Rates in the UK?

As of the 2024/25 tax year, the VAT rates in the UK remain consistent with the following:

1. Standard Rate – 20%

Applies to most goods and services.
Examples: Electronics, clothing, restaurant meals, and professional services.

2. Reduced Rate – 5%

Applies to certain goods and services.
Examples: Energy-saving materials, children’s car seats, and home energy bills.

3. Zero Rate – 0%

Applies to essential items.
Examples: Most food and drink, children’s clothing, books, and newspapers.

4. Exempt Goods and Services

VAT does not apply to these services.
Examples: Insurance, education, training, and health services.

What is VAT threshold in the UK?

The VAT registration threshold in the UK for the 2024 tax year remains at £90,000 (up from 85,000). During the spring budget, the Chancellor outlined several changes, including the VAT threshold increase effective from 1 April 2024. The previous threshold of £85,000 had been in place since 2017 before this update. This means that if your business’s taxable turnover exceeds £90,000 over a 12-month period, you must register for VAT with HMRC.

How do I register for a VAT in the UK?

To register for VAT in the UK, you need to follow these steps:

1. Check if You Need to Register

Threshold: If your business’s taxable turnover exceeds £90,000 (as of 1 April 2024), you must register for VAT. If your turnover is less than the threshold, you can register voluntarily.
Types of VAT: Consider whether your goods/services are standard-rated, reduced-rated, or zero-rated.

2. Gather Required Information

Before registering, you’ll need the following details:

Unique Taxpayer Reference (UTR).
Business bank account.
Company details (e.g., company number and address).
Estimates of sales and purchases.
National Insurance number.

3. Register Online with HMRC

Sign in: Go to the HMRC VAT Registration website and sign in to your business tax account. If you don’t have one, you’ll need to create it.
Provide details: Fill in your business details, turnover, and VAT taxable supplies.

4. Receive Your VAT Registration Number

Once registered, you will receive a VAT registration number (usually within 14 days). This allows you to:

Charge VAT on your sales.
Reclaim VAT on business-related purchases.

5. Submit VAT Returns

After registration, you must:

Submit VAT returns, usually every quarter.
Pay VAT to HMRC based on your return.

6. Consider VAT Schemes

You may be eligible for VAT schemes such as the Flat Rate Scheme or Annual Accounting Scheme, which could simplify your VAT reporting and payments.

Conclusion

VAT rates accurately ensure compliance and help businesses manage their pricing and tax obligations effectively. For further details or assistance with VAT, please consult a tax professional.