An Introduction to UK VAT
Value Added Tax, or simply VAT as most people know it, is a type of tax present in many countries around the globe. Similar to other countries, UK VAT is imposed on the sales of different kinds of services and goods. This tax acts as both indirect and consumption tax due to the fact that it is levied on products/services that individuals buy and it’s gathered by business entities on the behalf of the central authorities.
UK VAT rates
It is not unusual for UK VAT rates to be changed. At this moment, the standard rate of this tax is 20%. The vast majority of products and services are charged in this way. But, it’s worth mentioning that there are different rates for VAT for specific products and services.
First of all, there is a lower VAT rate for energy saving services, sanitary products, and kid’s car seats and this rate is 5%. There is also a zero rate which means that there is no VAT involved in sales of books, the majority of food products and kid’s clothes. Even though there is no VAT involved, the business will still have to report these sales and add 0% VAT mark.
Finally, there are some products and services that are simply exempt. For example, property transactions, financial transactions, and postage stamps are exempt. The only difference between them and zero rate VAT items is that you don’t have to report them on the taxable turnover.
Historical UK VAT rates
The history of VAT in the UK starts in 1973 when this tax was introduced for the first time. It was an upgraded version of the Purchase Tax which existed for many decades. The purchase tax was applied only for the produced and distributed products and services and had a wide range of rates.
The UK VAT rate has been changed for many times in the past 45 years. Yet, the 20% is the highest rate of all time. between 1973 and 1974 the rate was 10%, in the next five years the rate was 8% and between 1979 and 1991 the VAT rate was 15%. Between 1991 and 2008 the VAT rate was set at 17.5% while in the next two years it was set at 15%. The following two years saw the VAT at 17.5% again. Starting from 2011, the UK VAT rate is 20%.
There are no indicators that show that this rate will change, but people should follow the news and possible changes because the rate determines the proper calculation of VAT. There are many online VAR calculators that can help you make accurate calculations related to the VAT. They are taking specific goods and services into account for these calculations which mean that you don’t have to worry about that.
VAT payments
Every business that has a turnover that exceeds 85.000 GBP per year must register to charge and pay VAT on the services and/or products they sell and buy. It is possible to register for VAT voluntarily. Although every business charges their clients VAT, these funds must be paid to the authorities (HMRC) during the process of VAT return application.
VAT payment procedure
There is a wide range of VAT payment options available to business users. Some of these payment methods include filling online forms and using faster payment on the phone. These are same or next day options.
On the other hand, there are options that could take up to three days to get processed and they include BACS, direct debit, debit card, credit card, a standing order which is available only for specific VAT schemes and at a building society or a bank.
Charging VAT
We have already mentioned that VAT is a type of indirect tax. In other words, you must have to add this tax to the amount you charge clients for your services and products. So, the invoices you are issuing must include certain elements like a unique invoice number, invoice date, the address and name of your business, your unique Vat registration number, the name and address of your customer and an accurate description of the services and goods that were sold. In addition, every item found on the invoice must come with a unite price without VAT, VAT rate, quantity, the total pay with VAT included and the amount of VAT to pay.
We hope that this article has helped you understand the essence of UK VAT.
