There are currently three different rates of value added tax which apply to most commercial enterprises; standard, reduced and zero.
The standard rate of VAT is currently set at 20%, this applies to the majority of goods and services traded within the United Kingdom.
The reduced rate of VAT is now set at 5% and this is applicable to a select amount of goods and services such as children’s car seats and domestic power supplies.
Goods and services subject to zero rate VAT are still treated as VAT’able however the tax levy is set at 0%. This rate extends to essential goods such as children’s clothing, newspapers and groceries as well as services like public transport.
Zero rated goods and services should not be confused with exempt goods and services which are not subject to VAT treatment at all. Companies selling zero rated products or services must still VAT register when they reach the VAT threshold and can claim back VAT they have paid on purchases. The difference is that their invoice will be marked 0% on the VAT line therefore the cost does not increase like it does with standard or reduced.
There are a handful of services that are exempt from VAT such as education, charity fundraising, insurance and medical services. VAT exempt businesses cannot register for VAT, however, they still pay VAT on purchases but cannot claim any back.
If a business is VAT registered it will apply the rate of tax relative to its product or service and charge this on top of their own fee to consumers; all businesses (even non-VAT registered) will pay VAT on items purchased from other VAT registered companies.
Assistance with VAT
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