Different VAT rates and Exemptions

When you issue an invoice to your customer, you must ensure that you charge the correct rate of VAT. Whilst most businesses in the UK charge VAT at the standard rate of 20% there are a number of different VAT rates and exemptions that you should be aware of. 

As a VAT-registered business, you must charge VAT on the goods and services you sell. You must be registered for VAT to start charging VAT on your invoices.

How to charge VAT

When you sell goods or services, you must do the following:

  • work out the VAT-inclusive price using the correct VAT rate (standard, reduced or zero-rated)
  • show the VAT information on your invoice – invoices must include your VAT number and display the VAT separately
  • show the transaction in your VAT account – a summary of your VAT
  • record the amount on your VAT return

Three types of VAT

In the UK, there are three separate VAT rates, the standard rate is 20%, the reduced rate is 5% and the zero rate is 0%.

There are special rules when charging VAT where there are discounts or free gifts. Here is a summary of the main points you need to consider below:

Discounts and free gifts

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 specific exceptions on gifts given to the same person if their total value in a 12-month period is less than £50.
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 etcNo 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‘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 vouchersCharged on the full value of the transaction
Redeemed face value vouchers sold at a discountCharged on the discounted value of the transaction
Link-save offers (buy one get one free or discounted)VAT is apportioned as mixed-rate goods – there are exceptions
Information from HM Revenue & Customs – 17 May 2022

If you would like to find out how we can support you with your VAT return then please get in touch.

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