What is VAT?
Value added tax, or VAT, is the tax you have to pay when you buy goods or services.
When you see a price for something in a shop, any VAT will already have been added.
Output VAT: Registered businesses needs to charge Value Added Tax (VAT) on their sales. This is known as output VAT.
Input Vat: Similarly business can claim VAT on most goods and services purchased by the business. This is known as input VAT.
Net VAT: If output vat exceeds input vat, business needs to pay to HMRC however, if input vat exceeds output, business will get VAT refund from HMRC.
Types of VAT
Standard VAT: The standard VAT@20% applies to most goods and services.
Reduced VAT: The reduced rate @ 5% applies for some goods and services such as home energy, children car seats.
Zero Rate VAT: Zero rate goods and services, for example, most food and children’s clothes.
Exempt VAT Rate: Exempt rate applies on postage stamps, financial and insurance transactions.
A business is required to register for VAT if the value of taxable supplies exceeds the annual registration limit of £85,000.
Flat Rate Scheme features
1-you pay a fixed rate of VAT to HMRC
2-you keep the difference between what you charge your customers and pay to HMRC
3-you cannot reclaim the VAT on your purchases – except for certain capital assets over £2,000
4-To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.
How to join
You can join the scheme online when you register for VAT.
You can also fill in VAT600 FRS and either:
- email it to vrs@hmrc.gsi.gov.uk
- send it by post
How to leave
You can choose to leave the scheme at any time. You must leave if you’re no longer eligible to be in it.
To leave, write to HMRC and they will confirm you’re leaving date.
You must wait 12 months before you can re-join the scheme.
BT VAT
HM Revenue and Customs
BX9 1WR
Leaving the scheme
You must leave the scheme if:
- you’re no longer eligible to be in it
- on the anniversary of joining, your turnover in the last 12 months was more than £230,000 (including VAT) – or you expect it to be in the next 12 months
- you expect your total income in the next 30 days alone to be more than £230,000 (including VAT)
Flat rates for types of business
| Type of business | Current VAT flat rate (%) |
| Accountancy or book-keeping | 14.5 |
| Advertising | 11 |
| Agricultural services | 11 |
| Any other activity not listed elsewhere | 12 |
| Architect, civil and structural engineer or surveyor | 14.5 |
| Boarding or care of animals | 12 |
| Business services not listed elsewhere | 12 |
| Catering services including restaurants and takeaways before 15 July 2020 and after 31 March 2021 | 12.5 |
| Catering services including restaurants and takeaways between 15 July 2020 and 31 March 2021 | 4.5 |
| Computer and IT consultancy or data processing | 14.5 |
| Computer repair services | 10.5 |
| Entertainment or journalism | 12.5 |
| Estate agency or property management services | 12 |
| Farming or agriculture not listed elsewhere | 6.5 |
| Film, radio, television or video production | 13 |
| Financial services | 13.5 |
| Forestry or fishing | 10.5 |
| General building or construction services* | 9.5 |
| Hairdressing or other beauty treatment services | 13 |
| Hiring or renting goods | 9.5 |
| Hotel or accommodation before 15 July 2020 and after 31 March 2021 | 10.5 |
| Hotel or accommodation between 15 July 2020 and 31 March 2021 | 0 |
| Investigation or security | 12 |
| Labour-only building or construction services* | 14.5 |
| Laundry or dry-cleaning services | 12 |
| Lawyer or legal services | 14.5 |
| Library, archive, museum or other cultural activity | 9.5 |
| Management consultancy | 14 |
| Manufacturing fabricated metal products | 10.5 |
| Manufacturing food | 9 |
| Manufacturing not listed elsewhere | 9.5 |
| Manufacturing yarn, textiles or clothing | 9 |
| Membership organisation | 8 |
| Mining or quarrying | 10 |
| Packaging | 9 |
| Photography | 11 |
| Post offices | 5 |
| Printing | 8.5 |
| Publishing | 11 |
| Pubs before 15 July 2020 and after 31 March 2021 | 6.5 |
| Pubs between 15 July 2020 and 31 March 2021 | 1 |
| Real estate activity not listed elsewhere | 14 |
| Repairing personal or household goods | 10 |
| Repairing vehicles | 8.5 |
| Retailing food, confectionery, tobacco, newspapers or children’s clothing | 4 |
| Retailing pharmaceuticals, medical goods, cosmetics or toiletries | 8 |
| Retailing not listed elsewhere | 7.5 |
| Retailing vehicles or fuel | 6.5 |
| Secretarial services | 13 |
| Social work | 11 |
| Sport or recreation | 8.5 |
| Transport or storage, including couriers, freight, removals and taxis | 10 |
| Travel agency | 10.5 |
| Veterinary medicine | 11 |
| Wholesaling agricultural products | 8 |
| Wholesaling food | 7.5 |
| Wholesaling not listed elsewhere | 8.5 |
What is Margin VAT SCHEME?
VAT margin schemes tax the difference between what you paid for an item and what you sold it for, rather than the full selling price. You pay VAT at 16.67% (one-sixth) on the difference.
You can choose to use a margin scheme when you sell:
- second-hand goods
- works of art
- antiques
- collectors’ items
You cannot use a margin scheme for:
- any item you bought for which you were charged VAT
- precious metals
- investment gold
- precious stones
Example
You buy a work of art for £1,500 and sell it for £2,000. Using a margin scheme, you pay VAT at 16.67% (one-sixth) on the difference: £500. This means you’ll pay £83.3
Margin schemes and standard VAT
If some of the items you buy and sell are not eligible for a margin scheme, you pay and charge VAT for those items in the normal way.
You cannot include any of the following in your calculations when using a margin scheme:
- business overheads
- repairs
- parts or accessories
Instead, reclaim these on your VAT return in the normal way.