VAT Explained

December 6, 2017

VAT is Value Added Tax – a tax applied to goods and services. The standard rate in the UK is 20%, which is applied to most goods and services. Some items are taxed at a reduced rate of 5%, some are at zero rate (0%) and some things are tax exempt. What qualifies for VAT and the VAT rate you charge depends on the type of goods or services you provide.

VAT differs from sales tax as the taxation is applied at the different steps in the chain of production – meaning small amounts are taxed between the consumer and retailer, between the retailer and supplier and so on. Sales tax applies the tax only at the step between the consumer and the retailer.

VAT was increased to the current rate of 20% in January 2011. Prior to then, taxation was 17.5%. Goods exported outside of the EU or sent to other EU countries are zero-rated though conditions apply. Food and drink (for human consumption) is also zero-rated, though some are standard rate. Standard rate foods and drinks include catering, alcohol, confectionery, crisps and savoury snacks, hot food and takeaways, sports and soft drinks, mineral water and ice cream.

Some things are exempt from VAT. VAT exempt items include sports activities, betting, admission to museums, art galleries and zoos, antiques, some aspects of charity, some services for the disabled, burial and cremation, stop smoking aids, some medical products, education, parking, Royal Mail postal services and financial services (including investment and insurance).

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