VAT Rates
VAT is charged at the following rates:
- Standard rate, 17.5%
- Zero rate, 0%
- Exempt rate, no VAT
- Special rate for gas and electricity,
sanitary products, children’s car seats and urban regeneration
5%
The standard rate
The standard rate is the most common
rate of VAT. If in doubt, always charge VAT at 17.5%. You may be
wrong to charge this rate, but it is difficult for you to be penalised
for doing so. If your customer objects, please ask us for advice,
and you can always issue a credit note.
Zero rate and exempt
Some things aren’t charged at
the standard rate. Except for the oddballs that are charged at 5%
this means they are either subject to Zero or exempt rates of VAT.
This is important for several reasons:
1. You cannot reclaim VAT if it has not been charged to you, so
you need to know what does not have VAT on it.
2. If you sell something that is subject
to zero rate VAT or exempt rate VAT then you should not charge VAT
on your sales invoice.
What items are zero rated for VAT?
In broad terms the following are subject
to zero rate VAT, which means VAT is charged, but at zero percent,
which makes it look like there is no charge:
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food (but not catering, entertaining,
hot take away meals, sweets and other delicacies and alcohol). |
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water services |
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books |
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newspapers |
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magazines |
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sheet music |
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maps |
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new houses |
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some work on listed and protected buildings |
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public transport |
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air fares |
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the export of some services (but always seek
advice on this one as the rules are complicated ). |
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some charitable services and supplies to charities |
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childrens clothing |
What items are VAT exempt?
In broad terms the following are subject
to exempt rate VAT, which means there is no charge to VAT at all
on their sale:
- sales of most land
- some rents
- insurance
- banking
- betting and gaming
- postal services, but only if supplied
by the Post Office or their agents, and not by anyone else(so if
you recharge postage its standard rate)
- most education services, but not
most training courses
- most medical services
- non profit making sports activities
Are the above lists complete?
No. The full lists are much too complicated
to reproduce here in full. The above are indications of the main
areas. If in any doubt as to whether something is zero rate or exempt
please phone us, or HM Customs & Excise and ask for advice.
Nothing can save you more tax than getting this right.
Why does this matter?
It matters because:
1. you can be penalised for charging the wrong rate
2. if you charge the wrong rate you
may not look competent to your customers
3. if you are VAT exempt you may not
be able to reclaim all the VAT charged to you from HM Customs and
Excise. This is a very important business issue, so it is well worth
getting right. If you ever supply anything that looks like one of
the exempt items (and if you’re self employed and also let
out a property this may well mean that you do) then you need to
ask for advice on how to deal with this.
Are there any special problem areas?
Yes the biggest problems we find are
with regard to:
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Printed products. If you deal with
these items regularly please seek advice on what items do,
and do not, have VAT charged on them. |
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Exports of goods. If you export goods please
seek advice on what documentation you must keep to prove that
you can zero rate the invoice you are planning to issue. |
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International services. This
is a nightmare area. The law is extremely complex. If you
supply services to someone outside the UK always seek advice
from us, or HM Customs & Excise as to how to charge
VAT on your invoice. The risk of a mistake in this area
is very high, and can be very expensive. It is well worth
checking. |
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