VAT Rate in the UK

Q: How do I comply with VAT in the UK?

Complying with VAT in the UK means following the UK VAT act. This includes preparing the correct invoices, keeping the necessary records of transactions for a period of 7 years and using legitimate foreign currency rates.

Q: What are my VAT responsibilities?

As a VAT-registered business: You have to charge VAT on all taxable goods and services you sell. You must file a VAT return every 3 months, even if you have no VAT to report. You can reclaim the VAT you paid for goods and services from other VAT-registered businesses. When reporting your VAT to HMRC, keep in mind, you must pay VAT even if you didn’t charge it from the customer — the price that you charge has the VAT included.

Q: What is exempt from VAT?

There are a few goods and services that are exempt from VAT and are not taxable. They include: Education and training Insurance and financial services Fundraising events held by charities Selling, leasing and letting of commercial properties.

Q: The difference between ’Zero-Rate’ and ‘VAT exempt’?

VAT-exempt means the goods and services are outside the VAT system — you don’t need to charge any VAT on them nor report them on your VAT return. Even though you don’t pay VAT on zero-rated supplies, they are still taxable and must be reported on your VAT return to HMRC. You can also reclaim the input VAT that you paid to other businesses when producing your zero-rated goods.

Learn about the VAT rate in the UK, rules and requirements. And get some handy insight into how Wise can help, with mid-market rate currency exchange, for a better deal when paying for goods from overseas.

Find out the VAT rates Send money at the real exchange rate

What is a VAT rate?

VAT (value added tax) is a type of consumption tax. The UK government applies it on the sale of goods and services.

VAT isn’t paid by businesses — instead, it’s charged to consumers in the price of goods, and collected by businesses, making it an indirect tax. Businesses are then responsible for reporting it to the government. In the UK, it must be reported to the HMRC (Her Majesty’s Revenue & Customs).

Wise is the cheaper, faster way to send money abroad.

If you need to make payments abroad to pay international invoices, suppliers or freelancers, you could be better off with Wise.

With Wise you get the real mid-market exchange rate every time, with no markups and no hidden fees. There’s just a low , transparent charge which can work out much cheaper than your regular bank, or alternatives like PayPal.

Payments are secure, fast, and arranged online for convenience. Try Wise today, to see how simple it is to access international payments for less.

Wise business accounts are not yet available for companies registered in India. However we hope to expand our service in future.

Different VAT rates apply to different goods and services.

VAT Rate	What the rate applies to
Standard rate - 20%	The standard VAT rate is 20%. It applies to most goods and services.
Reduced rate - 5%	The reduced VAT rate is 5% — this applies to goods and services like some health products, fuel, heating and car seats for children.
Zero rate - 0%	Zero-rated goods and services include most food, books and clothes for children. The sale of items in this category must still be reported on your VAT return, even though no VAT is charged.

Temporary UK VAT rate reduction for the hospitality & tourism industry.

As a result of the coronavirus pandemic and its subsequent impact on the hospitality and tourism industry, the UK government has introduced a temporary VAT rate reduction for businesses in those sectors.

The standard VAT rate of 20% will be cut to 5% for hospitality and tourism businesses from 15th July 2020 to 31st March 2021 to help the industry recover.

If you’re registered for VAT and normally charge the standard UK VAT rate on products and services such as food and beverages served on your premises, or holiday accommodation, this new 5% VAT rate applies to you.

Country
USA	UAE	Singapore
Australia	Europe	Canada
China	Malaysia	France
United Kingdom	India

How does VAT work?

VAT is collected at each point in the production of goods — every time value is added and a sale is made. This is what gives VAT its name — value-added tax. It’s designed to be paid by the consumer at the end. Here’s an example:

A supplier sells a badminton racket to a shop for £120. They owe £20 VAT to HMRC.
The shop pays £120 but can claim the £20 back from HMRC, so the shop doesn’t pay the VAT.
The shop sells the racket to the customer for £220. The VAT is £44 which the customer, as the end-user, pays in full to the shop.
Together with the reclaimable £20 VAT, the shop will end up paying £24 to HMRC.

Import and Export VAT.

VAT on Imports

When importing goods into the UK from the EU, you're generally required to pay UK VAT. If you’re not registered for VAT, you'll be charged VAT at the local rate of the country from which you purchased the goods.

When importing goods into the UK from non-EU countries, VAT is usually charged at the same rate as if you had purchased them in the UK.

VAT on Exports

When exporting goods to the EU, charging export VAT depends on whether your customer is VAT registered and whether you’re exporting goods or services. It is best to check country-specific regulations.

Export VAT generally doesn’t apply to exporting to non-EU countries - you can usually zero-rate these goods and services.

Get a better deal when importing goods from abroad with Wise.

VAT Refund.

When you’ve visited the UK, you’ll be able to get a VAT refund on items bought if:

You live outside the EU and are going back home
You’re an EU resident and are leaving the EU for 12 months or more
You work or study in the UK but you’re not an EU resident and you’re leaving the EU for 12 months or more

There are multiple ways of receiving the refund — either get paid immediately at a refund booth at the airport or send the approved form to a refund company.