VAT Guide

What actually is VAT?

VAT or Value Added Tax is a tax added to goods and services in the UK in an attempt to tax consumption. It forms the third largest source of income for the Government after income tax and National Insurance, and is therefore vital for the maintenance of public services and the day-to-day running of the country. VAT is paid on most goods and services and is listed as a “secondary tax” as it is paid by businesses to the government, rather than being paid directly by the person bearing the burden – the customer.

VAT has a standard rate (20%) as well as a reduced rate that applies to certain goods, listed below (5%), a “zero rate” of (you guessed it) 0%, and some goods that are exempt or outside of the system altogether!

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What do the different ratings apply to?

Examples of the goods and services which fall under the different VAT levels include:

Standard rated
Alcoholic drinks
Biscuits (chocolate covered only)
Bottled water (inc. mineral water)
Calendars & diaries
Carbonated (fizzy) drinks
CDs, DVDs & tapes
Cereal bars
Chocolate
Clothes & footwear (not for children under 14)
Confectionery/sweets
Delivery charges (postage & packaging)
Electrical goods
Electricity, gas, heating oil & solid fuel (business)
Food & drinks supplied for consumption on the premises (at restaurants, cafes etc)
Hot take-away food & drinks (inc. burgers, hot dogs, toasted sandwiches)
Ice cream
Fruit juice & other cold drinks (not milk)
Nuts (shelled, roasted/salted)
Postal services (Royal Mail/other licensed operators)
Potato crisps
Prams & pushchairs
Road fuel (petrol/diesel)
Salt (non-culinary)
Stationery
Taxi fares
Tolls for bridges, tunnels & roads (privately operated)
Water (industrial)

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Reduced rated
Children’s car seats
Electricity, gas, heating oil & solid fuel (domestic/residential/charity non-business)
Energy saving materials (permanently installed in residential/charity premises)
Maternity pads
Mobility aids for the elderly
Sanitary protection products
Smoking cessation products

Zero rated
Aircraft (sale/charter)
Bicycle & motorcycle helmets
Biscuits (not chocolate covered)
Books, maps & charts (not ebooks)
Bread, rolls, baps & pita bread
Brochures, leaflets & pamphlets
Building services for disabled people
Cakes (including Chocolate teacake, Jaffa Cakes)
Canned & frozen food (not ice cream)
Cereals
Chilled/frozen ready meals, convenience foods
Clothes & footwear (for children under 14 only)
Construction & sale of new domestic buildings
Cooking oil
Donated goods sold at charity shops
Eggs
Equipment for disabled people (inc. blind/partially sighted)
Fish (inc. live fish)
Fruit & vegetables
Live animals for human consumption
Meat & poultry
Milk, butter, cheese
Newspapers, magazines & journals
Nuts & pulses (raw for human consumption)
Prescription medicine
Protective boots & helmets (industrial)
Public transport fares (bus, train & tube)
Salt (culinary)
Sandwiches (cold)
Sewerage (domestic & industrial)
Shipbuilding (15 tonnes or over)
Tea, coffee & cocoa
Transport in a vehicle, boat or aircraft (not fewer than ten passengers)
Water (household)

Exempt
Antiques, works of art or similar
Burial or cremation (human)
Commercial land & buildings (selling/leasing/letting)
Cultural events operated by public bodies (museums, art exhibitions, zoos & performances)
Education, vocational training, research
Financial services (money transactions, loans/credits, savings/deposits, shares/bonds)
Funeral plan insurance
Gambling (betting, gaming, bingo, lottery)
Health services (doctors, dentists, opticians, pharmacists & other health professionals)
Insurance
Medical treatment & care
Membership subscriptions
Postage stamps
Sports activities & physical education
TV licence

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Outside the System
Goods & services sold outside the EU
Goods & services supplied by unregistered supplier
Statutory fees & services (MOT testing, congestion charge etc)
Tolls for bridges, tunnels and roads (operated by public authorities)
Voluntary donations to charity

Since VAT is standardised, as a consumer you won’t have to worry about applying it or calculating it yourself – the business or tradesman you’re working with will do that for you. You just need to make your payment and to them and enjoy your shiny new product or fancy new service. Simple.