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What are the VAT rates?

NOTE: The standard rate of VAT was reduced from 17.5% to 15% by the chancellor Alistair Darling on 1st December 2008. The standard rate is set to change again on 1st Jan 2010.

 

Rate of VAT

Also known as...

Applies to taxable supplies of ...

17.5%

standard rate

most goods and services

5%

reduced rate

examples: fuel and power used in the home and by charities, renovation and alteration of dwellings, women's sanitary products

0%

zero rate

certain goods and services on which you do not need to charge VAT (examples below)

Zero-rated supplies

Below are examples of taxable supplies where the VAT rate of 0% is applied.

  • Most food, but not HOT food prepared in restaurants, take-aways, or any other food outlets. The only exception to this rule is if the food is heated but not with the intention to be consumed hot. Eg, Bread from a baker will often be sold hot or warm. Also pasties fall under this exemption.
  • books;
  • newspapers;
  • young children's clothing and shoes;
  • exported goods (For further information see Notice 703 Exports and removals of goods from the UK.);
  • most prescriptions dispensed to a patient by a registered pharmacist;
  • and most public transport services.

VAT is not charged (therefore it cannot be reclaimed) on goods and services that are:

  • exempt from VAT
  • outside the scope of VAT

Exempt items

There are some goods and services that are exempt from VAT. Exempt goods and services are not taxable for VAT.
Items exempt from VAT include insurance, some services from doctors and dentists and some types of education and training.

If you sell or otherwise supply exempt items, you cannot register for VAT and you cannot charge VAT. If you buy exempt items, you cannot reclaim any VAT.

If you sell some exempt items and some VATable items, your business is 'partly exempt' and you will only be able to reclaim VAT related to the VATable items you sell.

There's an important difference between goods and services that are exempt from VAT and those that are zero-rated. If you sell or otherwise supply zero-rated items, you can claim the VAT back on your purchases.

Items outside the scope of VAT

Some goods and services aren't covered by the UK VAT system at all - they're outside the scope of VAT.
You do not charge nor reclaim VAT on goods or services that are outside the scope of VAT including any items that you:

  • sell or otherwise supply when you're not registered for VAT - and you do not need to be registered
  • buy and sell outside the UK
  • do not sell or otherwise supply as part of your business
  • buy and sell for your own personal use such as a hobby

Other items outside the scope of VAT include:

  • Donations to charity freely given by a business where the giver does not receive anything in return
  • Statutory fees and services, eg MOT testing, congestion charge
  • Tolls for bridges, tunnels and roads operated by public authorities
  • Low cost welfare services provided by charities

Goods or services you supply within the European Union (EU) can be inside or outside the scope of UK VAT, depending on the particular transaction.

Disclaimer

The content and advice is for information only. Last updated 26.07.2009.

For up to date information and advice, based on your specific circumstances, please contact us.

We cannot be held responsible for actions taken with reference to the content contained on this website.

 


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