What is VAT?
In the UK(United Kingdom), every business is charged a tax on sales and services provided to consumers, called VAT(value-added tax). An organisation known as HM Revenue & Customs(HMRC) imposes VAT on businesses and receives VAT from them. A company can demand back the VAT it paid for the production of goods.
Historic Background Of VAT?
To gain entry into the European Economic Community (EEC), the government of the UK(United Kingdom) finally introduced VAT at a rate of 10%. The VAT became functional on April 1st, 1973. This step boosted the UK’s economy.
Types Of VAT
Now, VAT is classified into three types: the standard Rate of 20%, the Reduced Rate of 5%, and the Zero Rate. Read the complete article for more details.
Standard Rate of 20%
The current VAT rate in the UK is 20%, which businesses impose on services or goods sold to consumers. In January 2011, the VAT rate was 17.5%, and then it increased to 20%. It is usually imposed on most goods and services.
Reduced Rate Of 5%
Some goods and services pay less tax than the standard rate and fall under this category of reduced rate. This tax is usually imposed on commercial and residential property, home energy, and children’s car seats.
Zero Rate
Some goods or services pay zero VAT and fall under this category. These services or goods include most food, water, savage services, medication, equipment for the disabled, and many more.
VAT Exempt
VAT is not imposed on some goods and services in the UK; they are called VAT-exempt. Some are financial services, sports activities, education training, postal services, etc.
VAT Threshold
If your business sales surpass the turnover, which is £90,000, then you must do your registration for VAT. It is called the VAT threshold.