Current VAT Rate

The value-added-tax or VAT rate is a type of tax placed on the sale of goods and services across the UK.  It is regarded as an ‘indirect tax’ as it is collected by registered businesses on the Government’s behalf.

Current VAT rates in the UK

The standard VAT rate on all purchases is 20%.  This covers most goods and services on sales across the country.  However, there are other rates that everyone should be aware of. To add or remove VAT use our VAT calculator.

There is a reduced rate of 5% which is charged on home energy products, children’s car seats and all sanitary goods.  A VAT rate of 0% is applied to goods and services which are ‘zero-rated’. Examples of these include most food, children’s clothes, books and newspapers.  

Some things are exempt from tax altogether such as postage stamps, financial and property transactions. 

History of VAT in the UK

VAT was introduced after the UK joined the European Economic Community (now European Union) in 1973.  This new rate replaced the old ‘purchase tax’ which had been in place since March 1940.  

The standard rate of VAT has changed over time.  This is down to the different political and economic priorities of each Government.  The standard rate of VAT cannot be lower than 15% under EU law. The table below details how the rate has changed over time. 

How do you pay VAT? 

Any business with a turnover higher than £85,000 per year must register and pay VAT on all goods and services that are sold.  The VAT charged to their customers is paid in turn to HM Revenue & Customs (HMRC). 

There are a number of ways that businesses can pay their VAT to HMRC.  Same or next day payments can be made two ways. These are:

1. Online or telephone banking (faster payments)

2. CHAPS (Clearing House Automated Payment System)

There are other payment options which can take 3 working days to clear.  They are:

1. Direct Debit

2. BACS (Bankers Automated Clearing Services)

3. Standing order (for businesses using the Annual Accounting Scheme)

4. Online by debit or corporate credit card

5. At a bank or building society

Any business that has a payment deadline which falls on a weekend or bank holiday need to make sure that their payment is with the HMRC on the last working day before it. 

When paying VAT

It is important that VAT is added properly to goods and services.  This helps the business to file an accurate VAT return. This means filling out all invoices using the correct format, including invoice number, date of invoice, VAT registration number, customers details and a description of the goods and services. Each item on the invoice should include unit pricing excluding VAT, quantity, VAT rate, the amount of VAT to pay and any discounts.  Further information is available from the HMRC.