Vat rules of UK

1. VAT Rules of UK
Made by Wahida Zahin

2. Taskwise BD
Basic UK VAT Rules

3. VAT rates
VAT rates for goods and services
% of VAT What the rate applies to
Standard rate 20% Most goods and
services
Reduced rate 5% Some goods and
services, eg children’s car seats and home energy
Zero rate 0% Zero-rated goods and
services, eg most food and children’s clothes

4.  Standard rate
 Most goods and services are standard rate. You should charge this rate unless the goods or services are
classed as reduced or zero-rated.
 This includes any goods below the distance selling threshold you supply from Northern Ireland to non-
VAT registered EU customers. If you go over the threshold, you’ll have to register for VAT in that country.
 Reduced rate
 When you charge this rate can depend on what the item is as well as the circumstances of the sale, for
example:
 children’s car seats and domestic fuel or power are always charged at 5%
 mobility aids for older people are only charged at 5% if they’re for someone over 60 and the goods are
installed in their home
 Zero rate
 Zero-rated means that the goods are still VAT-taxable but the rate of VAT you must charge your customers is
0%. You still have to record them in your VAT accounts and report them on your VAT Return. Examples
include:
 books and newspapers
 children’s clothes and shoes
 motorcycle helmets
 most goods you export from England, Wales and Scotland (Great Britain) to a country outside the UK
 most goods you export from Northern Ireland to a country outside the EU and the UK
 goods you supply from Northern Ireland to a VAT registered EU business - you can check if the VAT number is

5. What is the VAT rate in UK 2021?
• 12.5%
• The Chancellor announced at Budget 2021 that the temporary reduced rate of
5% will be extended to 30 September 2021. From 1 October 2021 the
reduced rate for these supplies will be replaced by the introduction of a new
reduced rate of VAT of 12.5% which will remain in effect until 31 March 2022.Mar 3,
2021

6. • This brief explains the changes in the VAT treatment of certain supplies of:
• hospitality
• hotel and holiday accommodation
• admission to certain attractions
• The Chancellor announced at Budget 2021 that the temporary reduced rate
of 5% will be extended to 30 September 2021.
• From 1 October 2021 the reduced rate for these supplies will be replaced by
the introduction of a new reduced rate of VAT of 12.5% which will remain in
effect until 31 March 2022.

7. Background
• On 8 July 2020, the government announced that it would introduce a temporary 5%
reduced rate of VAT for certain supplies of hospitality, hotel and holiday accommodation,
and admissions to certain attractions. This came into force on 15 July 2020. The
Chancellor of the Exchequer later announced on 24 September 2020 that the temporary
reduced rate for tourism and hospitality would be extended to 31 March 2021.
• The Chancellor announced at Budget 2021 that the temporary reduced rate of 5% will be
extended to 30 September 2021. From 1 October 2021 the reduced rate for these
supplies will be replaced by the introduction of a new reduced rate of VAT of 12.5% which
will remain in effect until 31 March 2022.

8. Affected
Supplies
• The following supplies, which already currently benefit from the 5%
reduced rate, will continue to benefit from the reduced rates through
the extension:
• food and non-alcoholic beverages sold for on-premises
consumption, for example, in restaurants, cafes and pubs
• hot takeaway food and hot takeaway non-alcoholic beverages
• sleeping accommodation in hotels or similar establishments, holiday
accommodation, pitch fees for caravans and tents, and associated
facilities
• admissions to the following attractions that are not already eligible
for the cultural VAT exemption such as:
• theatres
• circuses
• fairs
• amusement parks
• concerts
• museums
• zoos
• cinemas
• exhibitions
• similar cultural events and facilities
• Where admission to these attractions is covered by the existing
cultural exemption, the exemption will take precedence.
• The types of supplies that the relief applies to will remain unchanged
when the new temporary 12.5% rate is introduced on 1 October
2021.
• Further guidance on the operation of the new reduced rate will be
published when it comes in to force on 1 October 2021.

9. How VAT works
• VAT is charged on things like:
• business sales - for example when you sell goods and services
• hiring or loaning goods to someone
• selling business assets
• commission
• items sold to staff - for example canteen meals
• business goods used for personal reasons
• Non Sales like bartering
• These are known as Taxable Supplies

10. Responsibilities
• VAT-registered businesses: must charge VAT on their goods or services may reclaim any VAT
they’ve paid on business-related goods or services must account for import VAT on their VAT
return if they use import VAT this way (known as ‘postponed VAT accounting’
(https://www.gov.uk/guidance/check-when-you-can-account-for-import-vaton-your-vat-return))
• If you’re a VAT-registered business you must report to HM Revenue and Customs (HMRC) the
amount of VAT you’ve charged and the amount of VAT you’ve paid. This is done through your VAT
Return (https://www.gov.uk/vat-returns) which is usually due every 3 months.
• You may want to appoint an agent (https://www.gov.uk/appoint-tax-agent) to deal with HMRC on
your behalf. You must account for VAT on the full value of what you sell, even if you: receive goods
or services instead of money (for example if you take something in part exchange)
• haven’t charged any VAT to the customer - whatever price you charge is treated as including VAT If
you’ve charged more VAT than you’ve paid, you have to pay the difference to HMRC. If you’ve
paid more VAT than you’ve charged, you can reclaim the difference from HMRC

11. What you
must do when
charging VAT
• You need to know the right VAT rate
(https://www.gov.uk/vat-businesses/vat-rates) so you
can charge it correctly and reclaim it on your
purchases.
• If a transaction is a standard, reduced or zero-rated
taxable supply, you must: charge the right rate of VAT
work out the VAT if a single price is shown that
includes or excludes VAT
(https://www.gov.uk/vatbusinesses/inclusive-
exclusive-prices) show the VAT information on your
invoice show the transaction in your VAT account - a
summary of your VAT show the amount on your VAT
Return
• You may be able to reclaim the VAT
(https://www.gov.uk/reclaim-vat) on purchases that
relate to these sales.
• You cannot claim back all of the amount you’ve paid if
you pay the wrong amount of VAT on a purchase.

12. VAT-inclusive
and exclusive
prices
You’ll need to make a calculation when charging
VAT on goods or services, or when working out
the amount of VAT you can claim back on items
which were sold inclusive of VAT.
VAT-inclusive prices To work out a price including
the standard rate of VAT (20%), multiply the price
excluding VAT by 1.2. To work out a price
including the reduced rate of VAT (5%), multiply
the price excluding VAT by 1.05.
VAT-exclusive prices To work out a price excluding
the standard rate of VAT (20%) divide the price
including VAT by 1.2. To work out a price
excluding the reduced rate of VAT (5%) divide the
price including VAT by 1.05.

13. When not
to charge
VAT
• You cannot charge VAT on exempt or ‘out
of scope’ items.
• Exempt goods and services Exempt goods
or services are supplies that you cannot
charge VAT on.
• If you buy or sell an exempt item you
should still record the transaction in your
general business accounts.
• Examples of exempt items include:
insurance postage stamps or services
health services provided by doctors

14. VAT
registration
• Businesses that sell only VAT-exempt
goods and services cannot register for VAT.
If you start selling items that aren’t
exempt, you can register for VAT
(https://www.gov.uk/vat-registration)
voluntarily.
• You must register if the total value of non-
exempt goods and services goes over the
VAT taxable turnover threshold
(https://www.gov.uk/vat-
registration/calculate-turnover).

15. Out of
scope
• Some goods and services are outside the
VAT tax system so you cannot charge or
reclaim the VAT on them.
• For example, out of scope items include:
goods or services you buy and use outside
the UK statutory fees - like the London
congestion charge
(http://www.tfl.gov.uk/modes/driving/cong
estioncharge) goods you sell as part of a
hobby - like stamps from a collection
donations to a charity - if given without
receiving anything in return

16. Charging
VAT to
charities
• As a VAT-registered business, you can sell certain
goods and services to charities at the zero or
reduced rate of VAT (https://www.gov.uk/vat-
businesses/vat-rates).
• It’s your responsibility to check the charity is
eligible, and to apply the correct rate.
• Community amateur sports clubs (CASCs) don’t
qualify for VAT reliefs for charities.

17. Returned
goods
When you return goods to a supplier
or a customer returns goods to you,
the balance of payment can be settled
by issuing either a: replacement
invoice credit or debit note
If you exchange the goods for goods of
the same value you don’t need to issue
a new VAT invoice.

18. Credit and
debit notes
• These must show the same information as the
VAT invoice and: why it was issued the total
amount credited, excluding VAT the number
and date of the original VAT invoice

19. VAT may have
to be charged
on discounts
and deals.
Offer How to charge VAT
Discounts Charged on the discounted price (not the full
price)
Gifts Charged on the gift’s full value - there are some
exceptions listed below
Multi-buys Charged on the combined price if all the items
have the same VAT rate. If not, VAT is
‘apportioned’ as mixed-rate goods
Money-off coupons, vouchers etc No VAT due if given away free at time of a
purchase. If not, VAT due on the price charged
Face value’ vouchers that can be used for more
than one type of good or service
No VAT due, if sold at or below their monetary
value
Redeemed face value vouchers Charged on the full value of the transaction
Redeemed face value vouchers sold at a
discount
Charged on the discounted value of the
transaction
Link-save offers (buy one get one free or
discounted)
VAT is apportioned on mixed rate goods

20. Exceptions
for gifts and
link-save
offers
• There’s no VAT due on gifts given to the same
person if their total value in a 12 month period is
less than £50.
• VAT is charged on the combined value of link-save
items if the incentive product:
• has a resale value of less than £1
• has a sale value of less than £5
• costs you less than 20% of the total of the other
items in the offer
• isn’t sold at a separate price from the main product

21. Free goods and services
You don’t have to pay VAT
on things like free samples
if they meet certain
conditions.
Supplies Condition to meet so no VAT due
Free samples Used for marketing purposes and provided in a
quantity that lets potential customers test the
product
Free loans of business
assets
The cost of hiring the asset is included in
something else you sell to the customer
Free gifts The total cost of all gifts to the same person is less
than £50 in a 12 month period
Free services You don’t get any payment or goods or services in
return

22. How
your VAT refun
d is repaid
Claim your refund by submitting
a VAT Return.
You need to give your account details to
HM Revenue and Customs (HMRC) -
even if you’ve already set up a Direct
Debit for VAT Returns. Add or change
them by going to the registration details in
your VAT online account.
You can also use your online account to
view any refund you’re owed, unless
you’ve signed up for ‘Making Tax Digital
for VAT’.
You will usually get your refund within 10
days of HMRC receiving your return but it
may take longer. Only contact HMRC if
you have not heard anything after 30
days.

23. What you
must do when
charging VAT
You need to know the right VAT rate so you can
charge it correctly and reclaim it on your purchases.
If a transaction is a standard, reduced or zero-rated
taxable supply, you must:
charge the right rate of VAT
work out the VAT if a single price is shown
that includes or excludes VAT
show the VAT information on your invoice
show the transaction in your VAT account - a
summary of your VAT
show the amount on your VAT Return
 You cannot claim back all of the amount you’ve paid if you
pay the wrong amount of VAT on a purchase

24. Deadline of
Submission
• There are 4 quarters
• February
• May
• August
• November
• For the quarter ended of
February 2021 the submission
of VAT Account to the HMRC is
April 07,2021
• Taskwise BD team send the
draft account by April 01,2021
• Around 3 weeks time is
provided for preparing and
finalizing the accounts of
clients for example from
March 07,2021 to April
01,2021.

25. END