What is VAT tax in the UK?

VAT is a type of tax collected on the sale of goods & services in the United Kingdom by the HM Revenue and Customs department. A business is required to pay VAT, which it has collected, minus the VAT it has paid on the purchase of goods.

As per the government of the UK, any change in the tax rate has to be applied immediately, regardless of any time or date. Moreover, a business is required to pay VAT once it exceeds a yearly turnover of £90,000 or more (yearly turnover means in the last 12 months, regardless of the business year).

However, any business that still hasn’t reached the criteria of £90K is still eligible to proceed with its registration with HMRC. The VAT tax rates are divided into four categories:

Standard Rate

The standard rate of VAT collection is 20% and is applied to businesses in sectors including:

• Restaurant meals and catering
• Adult clothing and footwear
• Electronics and gadgets
• Home repair and IT support services

Reduced Rate

The reduced VAT rate is 5%, which is applied to businesses in sectors such as:

• Domestic gas and electricity
• Home energy-saving materials
• Children’s car seats

Zero Rate

The zero VAT rate means that no VAT is required to be paid to HMRC; however, you do need to register with HMRC and share your turnover and all the details. Businesses can still reclaim VAT on costs, but the customers are not required to pay!

Some examples of such businesses are mentioned below:

• Most basic food items
• Children’s clothing and shoes
• Printed books and newspapers