What do I need to know about VAT (Value Added Tax)?

What do I need to know about VAT (Value Added Tax)?

VAT is a tax that you pay when you buy goods and services in the European Union (EU), including the United Kingdom. Where VAT is payable it’s normally included in the price of the goods or service you buy. Some goods don’t attract VAT.

When do you pay VAT and how much?

Each EU country has its own rates of VAT. In the UK there are three rates.

Standard rate

You pay VAT on most goods and services in the UK at the standard rate, which is 20 per cent.

Reduced rate

In some cases, for example children’s car seats and domestic fuel or power, you pay a reduced rate of 5 per cent.

Zero rate

There are some goods on which you don’t pay any VAT, like:

  • food
  • books, newspapers and magazines
  • young children’s clothing and footwear
  • special exempt items -for example equipment for disabled people

How VAT is worked out

When someone charges you VAT they multiply the original (‘net’) price of the item or service by the VAT rate to calculate the amount of VAT to charge. They then add the VAT amount to the net price to give the ‘gross’ price – the price you pay.

Prices in retail shops

Prices advertised to the public in ordinary retail shops include VAT. No tax will be added to the price when you pay. This is a legal requirement.

Prices in advertisements, catalogues and price lists

Products advertised in outlets, magazines, on the internet, or shown in catalogues, price lists and other literature may be aimed at the consumer, businesses, or both. If they’re only meant for the general public, they’ll show you a price including VAT. This is a legal requirement.

If they’re aimed at both consumers and businesses, they will usually show a VAT inclusive price, but may also show a price without VAT. The VAT inclusive price must be given equal importance, but read carefully to make absolutely certain you understand what price you’ll pay.

VAT on bills and receipts

Most retail prices on bills and receipts include VAT – it is not shown separately. However some may have a line under which they show the VAT element. This doesn’t mean you’re being charged extra – it just shows how much of the price is made up of tax.

Non-retail invoices from VAT-registered suppliers (for example from builders or painters and decorators who are VAT registered) must show a separate amount for VAT. They must also show the nine-digit VAT registration number of the business.

How to check if a VAT number is valid

To check whether a UK VAT number is valid you can call HM Revenue & Customs (HMRC) VAT Helplineon 0845 010 9000. Lines are open 8.00 am to 8.00 pm Monday to Friday.

You can also check European Union VAT numbers online.

If you suspect a VAT fraud

If you suspect that a firm is avoiding paying VAT, or of charging VAT when they aren’t VAT registered, you can report them in confidence on the Customs Confidential hotline, 0800 595 000, open 24 hours, seven days a week.

You don’t have to give your name or any personal details.

Businesses that may not charge VAT

Businesses with annual sales below 68,000 (2009-10) don’t have to register for (and therefore charge) VAT, but they may choose to do so voluntarily.If they don’t, the price you pay for their goods or services may be cheaper than if you bought the same goods or services from a VAT-registered supplier.

Further information

If you have a query, contact HMRC’s VAT Helplineon 0845 010 9000. Lines are open 8.00 am to 8.00 pm Monday to Friday.

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