What is VAT?

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VAT Calculator. This blog is here to help you understand all things VAT in the UK.
What is VAT?

What is VAT? Quite often when you buy goods you will notice the three letters VAT – often followed by a price increase of that item.

VAT stands for Value Added Tax and is a tax charged to the final consumer of a product.

Value Added Tax in the UK

This is normally charged at 20% of the product’s cost. For example a £100 product would have £20 value added tax, therefore you pay £120 in total. The business that you pay for the item (at a later date) will pay the collected value added tax to HM Revenue and Customs.

Not everything is liable to VAT at 20%. Some things have no VAT to pay on them at all.

There are three rates of VAT:

  • Standard rate at 20%
  • Reduced rate at 5%
  • Zero Rate at 0%

The 0% rate is mainly reserved for items considered essential. These are things like; simple food and clothes for babies. This helps to ensure these products are more affordable.

The reduced 5% rate is usually for items which are beneficial such as utilities that provide heat and power to a home, or some non essential medical products like nicotine patches.

A standard rate is applied to just about everything else that is considered a luxury item. These are things such as; cooked food, toys, tools and many other products.

If you would like to know more about which items are charged at which VAT rate, then you can find a list by clicking this link.

You may notice some items have “exempt” next to them. This means VAT is never charged on them, not even at 0%.

We hope the above has given you a greater understanding of value added tax, but if you have any questions regarding the above, please do not hesitate to contact us.

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