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Understanding the basics of Value Added Tax (VAT)



Value-added tax (VAT) is a consumption tax that is applied to most goods and services sold in the UK. The standard VAT rate is 20%, but there are also reduced rates of 5% and 0%.


Who needs to register for VAT?​


You need to register for VAT if your taxable turnover is more than £85,000 per year. You may also need to register for VAT if you are trading in certain goods or services, even if your taxable turnover is below £85,000. The threshold £85,000 applies up to 31.03.2023

Starting April 1st, 2024, there's good news for businesses in the UK! The threshold for registering for Value Added Tax (VAT) has been raised from £85,000 to £90,000.

This means if your annual sales of taxable goods and services were below £90,000 in 2024/25, you don't need to register for VAT.


How to register for VAT


You can register for VAT online through the Government Gateway. You will need to provide your business details, such as your name, address, and National Insurance number.​

What to do when you are registered for VAT​

Once you are registered for VAT, you need to charge VAT on all of your taxable sales. You also need to keep records of your sales and purchases, and submit a VAT return to HMRC every quarter.​


De-registering for VAT:


There's also some relief for businesses already registered for VAT. The de-registration threshold has also been increased to £88,000 (up from £83,000). This allows businesses whose sales fall below this level to deregister from VAT. This threshold rise from £83,000 to  £88,000 is effective from 1st of April 2024 and applies to taxable sales for 2024/25 tax year.



VAT rates in the UK: What you need to know


Value-added tax (VAT) is a consumption tax that is applied to most goods and services sold in the UK. The standard VAT rate is 20%, but there are also reduced rates of 5% and 0%.​


Tips for managing VAT

Here are a few tips for managing VAT:​


  • Keep accurate records of your sales and purchases.​

  • File your VAT returns on time.​

  • Claim back VAT on your business purchases.​

  • Be aware of the different VAT rates.​

  • If you're unsure about anything, contact  Ben Accounting for advice. We can  help you to manage your VAT obligations and help you with a variety of VAT services, including:​

  • Registering for VAT​

  • Filing VAT returns​

  • Claiming back VAT​

  • Advising on VAT rates and regulations​


What VAT rates apply to different goods and services?​


VAT rate

Category

Examples

20%

Standard rate

Furniture, clothes, electronics, toys, restaurant meals, most building services

0%

Zero rate

Food and drink for human consumption, books and newspapers


5%

Reduced rate

Children's clothes and shoes, electricity and gas for domestic use, power showers, solar panels, energy-saving insulation


What VAT rate applies to food and drink?​


The standard VAT rate of 20% does not apply to food and drink for human consumption. Instead, food and drink are subject to the zero VAT rate. This means that you do not need to charge VAT on food and drink that you sell.​

What VAT rate applies to alcoholic drinks?​

Alcoholic drinks are subject to the standard VAT rate of 20%. However, there are some exceptions to this rule. For example, sparkling cider and perry are subject to the reduced VAT rate of 5%.​

If you are unsure about which VAT rate applies to a particular good or service, you can check the HMRC website or contact an accountant for advice.​


Why is it important to know about VAT rates?​


It is important to know about VAT rates so that you can charge the correct amount of VAT on your sales. If you charge too much VAT, you may have to refund the excess VAT to your customers. If you charge too little VAT, you may be liable to pay the difference to HMRC.​

If you are registered for VAT, you must also keep accurate records of your sales and purchases so that you can calculate your VAT liability correctly.


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