Value Added Tax, or VAT, is a tax added to many goods and services sold by VAT-registered businesses. This tax is often a 20% addition to the price of an item, though there are goods and services for which VAT is charged at a reduced or zero rate.

All businesses with a VAT taxable turnover for the financial year of over £85,000 must register to pay VAT. These businesses must submit a VAT return every 3 months, detailing how much VAT they have charged and how much they have paid to other businesses.

VAT registered businesses must submit a VAT return even if they have no VAT to pay or reclaim.

HOW TO CALCULATE vat TAXABLE TURNOVER

Your VAT taxable turnover is the total value of all goods and services you sell. This does not include items that are exempt from VAT or fall out of the scope of VAT, but it does include items that are ‘zero-rated’ for VAT.

This means that no VAT is actually charged on zero-rated goods or services, but they do count towards your total taxable turnover.

This total must also include:

  • Goods hired or loaned to customers.

  • Business goods you used for personal reasons.

  • Goods that you exchanged for other goods rather than cash (bartered or part-exchanged goods) and those given as gifts.

  • Building work over £100,000 that your business did itself.

Reduced or zero-rated goods and services

The following are examples of zero-rated items for VAT:

  • Most food and drink for human consumption. This excludes catering, alcoholic drinks, soft drinks, crisps, and hot food.

  • Sewerage services.

  • Aircraft repair and maintenance.

  • Printing of brochures and pamphlets.

  • Books, maps, newspapers, and magazines.

  • Children’s clothes.

  • Insulation.

  • Most goods exported to a country outside the UK.

  • Get the full list here.

The following are examples of reduced rate items for VAT, often at 5%:

  • Mobility aids for the elderly.

  • Electricity and gas for domestic use.

  • Heating oil and solid fuel for domestic use.

  • Renovating a dwelling that has been empty for at least two years.

  • Children’s car seats.

  • Get the full list here.

VAT EXEMPT GOODS AND SERVICES

The following are examples of VAT exempt items which do not need to be added to your total VAT taxable turnover:

  • Financial services, including investments and insurance.

  • Garages, parking spaces and even houseboat moorings.

  • Education and training.

  • Property, land, and buildings.

  • Healthcare.

  • Funeral plans.

  • Charity events.

  • Antiques.

  • Gambling.

  • Sports activities.

  • Get the full list here.

Out of scope goods and services

VAT cannot be charged on items that are ‘out of scope’ and do not need to be added to your VAT taxable turnover. These include:

  • Goods and services you buy and use outside of the UK.

  • Statutory fees, like congestion charges.

  • Goods sold as part of a hobby, like stamps and models.

  • Charity donations.

Need help with your VAT return?

Our CIMA-registered chartered accountants at CIGMA Accounting would be happy to assist you both in London and throughout the UK.

You can fill out the form below for a free quote. You’ll receive a response within one business day.