What is VAT?

VAT is a type of tax that is paid by the seller of the goods, or services, directly to HMRC. In most cases, the cost of VAT is added to the price that the buyer pays.

VAT is not charged at all on certain goods and services. For example, financial services, education providers, and charities all usually pay no VAT. There are many items for which no VAT is charged, including books, children’s clothes, some food products, and specialist equipment for disabled people.

Some of these goods and services are exempt from VAT and others are charged VAT at 0% (sometimes called ‘zero-rated’). The difference is that the supplier of can claim VAT back on the costs of producing a zero-rated product, but not for a VAT-exempt product. Full details of VAT-exempt products and services, and of the different VAT rates that apply, are available from HMRC.

When do I pay VAT?

VAT is payable whenever goods or services are purchased from a VAT-registered business.

  • If you are the seller, and your business is VAT-registered, you need to pay VAT to HMRC.

  • If you buy goods from a VAT registered business, the VAT is usually included in the price you pay.

How much VAT do I need to pay?

The standard rate of VAT is 20% of every transaction.

However, there are many exceptions to this. For example, children’s carrycots, central heating repairs, and household gas and electricity are among the categories charged at the Reduced Rate of 5%. A full list of these categories is available from HMRC.

Other goods and services are zero rated and charged VAT at 0%. Some goods and services are VAT exempt.

If your business is VAT-registered, it is important that you know how much VAT is payable on your goods or services.

Do I need to register for VAT?

You usually need to register for VAT:

  • If you own or run a business that operates in the UK and your annual turnover of taxable goods is over £85,000 – this figure includes all taxable income and assets from within the UK or the EU.
  • If you are starting a business or take over an existing business, and you expect your annual turnover to exceed £85,000.

If your turnover unexpectedly or temporarily exceeds this figure, you may not need to register, but you should inform HMRC of the circumstances.

You may also register for VAT if your turnover is less than £85,000, but you can only do so if you own or run a business. This does not apply if you only sell VAT exempt goods or services.

You can usually register for VAT online.

How do I pay VAT?

If you are the owner or operator of a VAT-registered business, you need to calculate the amount of VAT that you owe. This includes all your sales, and other goods or services that you supply, including those that are zero-rated, but excluding those that are VAT-exempt.

You also include any VAT you are reclaiming from HMRC in your VAT return.

You should provide all this information in your VAT return to HMRC every three months, called ‘accounting periods’.  In most cases, businesses are required to submit their VAT returns online. HMRC will confirm the total VAT payment that you owe, and state the deadline by which it should be paid. There are penalties for late payment.

There are only a few circumstances in which you are allowed to send your VAT return to HMRC on paper:

  • You live in a remote area and do not have internet access
  • You have a disability that prevents you from using a computer
  • You object to using computers on religious grounds
  • Your business is going through the insolvency process

Deadlines for VAT payment vary, but they are usually one month and seven days after the end of an accounting period. You get more time to pay your VAT if you set up a direct debit online.

For further Tax information, please follow the links below:

  • Income Tax includes:
    What is income tax?
    How is Income Tax calculated?
    How much income tax do I need to pay?
    Income Tax Allowances
    Income Tax Rates and Taxable Bands
    How do I pay income tax?

  • Tax Codes includes:
    Where do I find my Tax Code?
    New Tax Codes
    What does my tax code mean?
    Different Tax Codes
    More than one job
    Emergency Tax Codes

  • Emergency Tax Codes includes:
    What is an Emergency Tax Code?
    What does an emergency Tax Code look like?
    Why do I have a BR/ Emergency Tax Code?
    Can I get a Tax Refund if I have paid Emergency Tax?

  • Construction Industry Scheme includes:
    CIS For Subcontractors
    CIS For Contractors (Employers)

  • Self Assessment includes:
    What is Self Assessment?
    Do I need to complete a Self Assessment tax return?
    How do I get a Self Assessment tax return form?
    How do I register for Self Assessment?
    Can I register for Self Assessment on behalf of a company or trust?
    What is a Unique Tax Reference number (UTR)?
    How do I get a Unique Tax Reference (UTR) number?
    How do I complete my Self Assessment tax return online?
    Can I complete my Self Assessment tax return on paper?
    Record keeping
    Self Assessment Tax return deadlines
    What if I submit my tax return late?
    What if I submit my tax return incorrectly?
    How is my tax calculated?
    Do I need to check my tax calculation?

  • National Insurance includes:
    What is National Insurance?
    What are the different types of National Insurance?
    Who pays National Insurance?
    What is National Insurance used for?
    Do your National Insurance payments affect your Pension and Benefits?
    How much National Insurance should I pay?

  • Pension Tax includes:
    Do I have to pay tax on my pension?
    Do I have to pay tax on my state pension?

  • Corporation Tax includes:
    Who needs to pay Corporation Tax?
    How much Corporation Tax do I need to pay?
    How do I pay Corporation Tax?

  • Inheritance Tax includes:
    What is Inheritance Tax?

  • Capital Gains Tax includes:
    What is Capital Gains Tax?

More Info

Tax Refunds

For more information please see: