Unlike other taxes, VAT is collected on behalf of HMRC by registered businesses.
Once you’re registered for VAT, you must charge the applicable rate of VAT on any services you provide, or products you sell.
There are three VAT rates currently – the standard rate (20%), a reduced rate (5%), and zero rate. Some items are exempt from VAT.
Standard Rate (20%)
Most sales of goods and services in the UK are subject to VAT at the standard rate.
Reduced rate (5%)
Some essential goods and services are subject to VAT at the reduced rate of 5%. Most typically it includes things like domestic gas and electricity costs.
Zero-rated (0%)
There is VAT on these, but it is 0%. This is an important difference to the category below, Exempt. Zero-rated goods and services include baby and children’s clothes, printed material such as books, magazines and newspapers, and also travel, such as air and train fares.
Exempt Sales
On exempt sales, no VAT is charged at all, as distinct from zero-rated sales where VAT is charged but at 0%. Exempt sales include education, medical care provided by a hospital, hospice or nursing home, and health services provided by doctors, dentists, opticians, pharmacists etc.
The major difference between making zero rated supplies and exempt supplies for a business is the ability to reclaim VAT on purchases. A business making wholly zero rated supplies can reclaim all the VAT suffered. If you make wholly exempt supplies there is no reclaim available
0 Comments