1. VAT in Europe
3. VAT in United Kingdom

VAT in United Kingdom

United Kingdom VAT rates

The UK has a standard VAT rate and one reduced VAT rate. In addition, a number of items are zero-rated. The following VAT rates are currently applicable:

• Standard rate: 20%
• Reduced rates: 5% and 0%

Since 2021, the UK has the right to decide which products benefit from reduced VAT rates. This list is limited by the EU VAT directive in EU countries. Following Brexit, the UK is able to define the scope of reduced VAT rates. For example, women's sanitary products are zero-rated since 1 January 2021.

You can find more information about VAT rates in the UK in the guide published by HMRC about this topic.

Vat Tax in the UK

• Foodstuff
  0% and 20%
• Water supplies
  0% and 5%
• Pharmaceutical products
  0% and 20%
• Medical equipment for disabled persons
  0% and 5%
• Children's car seats
  5%
• Passenger transport
  0%
• Books
  0%
• Books on other physical means of support
  0% and 20%
• Newspapers
  0%
• Periodicals
  0%
• Admission to cultural services (theatre, etc)
  20% or Exempt
• Admission to amusement parks
  20%
• Pay TV / cable
  20%
• TV licenses
  Ex
• Writers / composers
  20%
• Hotel accommodation
  20%
• Restaurant and catering services
  20%
• Restaurants
  20%
• Admission to sporting events
  20%
• Medical and dental care
  Ex
• Shoes and leather goods
  20%
• Clothing and household linen
  20%
• Hairdressing
  20%

UK VAT Deduction limits

Input VAT can generally be deductible if the goods or services are used for business purposes. There are however certain items that are never deductible.

The below list provides detail on deduction rules for each type of expense:

• Input VAT on hotel accommodation or restaurant meals is 100% deductible provided the expense is incurred for business purposes by employees of the company
• Input VAT on conferences, fairs and exhibitions is 100% deductible provided the expense is incurred for business purposes by employees of the company
• Business gifts are 0% deductible
• Car rental, car repair and fuel expenses are 50% deductible where the expenses is connected to both, business and personal purposes. If wholly and entirely for business purposes, then VAT can be deducted at 100%
• Taxi, train and other transport expenses is 100% deductible provided the expense is incurred for business purposes
• Entertainment client expenses are generally 0% deductible unless they are provided to overseas customers

Deducting VAT prior to the beginning of the economic activity is only allowed on certain items. These include services supplied within six months before the registration date and VAT incurred on stock items that remain on stock on the date of registration. 

UK Statute of limitations on VAT: A Complete Guide

Navigate the complexities of the UK statute of limitations for VAT. Identify the periods after which legal action becomes impossible and plan your VAT compliance accordingly.

What is the Statute of Limitations in the VAT Context?

The statute of limitations is a crucial legal time frame within which authorities can investigate tax liabilities, including VAT. Likewise, it determines the period taxpayers have to claim VAT reimbursements on invoices received.

How Do Limitation Periods Affect Different VAT Claims?

In the UK, the general statute of limitations for VAT is four years. Here’s how it applies to various VAT scenarios:

• Input VAT: Must be claimed in a VAT return filed no later than the end of the fourth year following the year in which the deductible VAT was due. Special rules apply for pre-registration expenses.
• Output VAT: The obligation to pay VAT also falls within a four-year limitation period. However, in cases of fraud or deliberate non-compliance, this can extend to 20 years. 

For pre-registration expenses, businesses can reclaim VAT on goods purchased within four years, provided they still possess the goods (or goods created from them). For services received, the limitation period is six months.

For further details, refer to HMRC's manual on VAT assessments and time limits.

You can find more details about time limits on VAT assessments in the UK in the manual published by HMRC about this topic.

When Does the Statute of Limitations Commence?

The clock on the UK statute of limitations starts ticking at the end of the accounting period where the invoice should have been declared, or the date of importation or other acquisition. More information can be found here.

Why is important the statute of limitations for businesses?

Understanding the statute of limitations is vital for effective VAT management. It dictates the time frame within which you can retroactively claim VAT on received invoices, and how far back tax authorities can go to assess VAT on issued invoices.

For example, if you forgot to account for the VAT paid on an invoice received some time ago, you shall consider the statute of limitations. You will only be able to deduct it now if this period is not expired. If you did not deduct this input VAT in the corresponding reporting period, this is considered an error, and you may need to correct the VAT return for such reporting period.

Practical Implications

If you overlooked VAT paid on an old invoice, the statute of limitations will determine whether you can still claim it. If missed, this constitutes an error that may require a corrected VAT return for that reporting period.

Moreover, if you discover inaccuracies in your VAT declarations related to sales invoices, the statute of limitations will influence your ability to amend those returns.

UK tax point rules

The tax point is the time when VAT becomes due. VAT due should be distinguished from VAT payable. VAT is due when the tax point occurs. VAT is payable between the day after the end of the reporting period and the due date to submit and pay the VAT return. For example, for a supply of goods completed on 15 February, VAT is due on 15 February. However, VAT will become payable as from 1 April  (if the taxpayer follows calendar quarters). 

• General rule: Tax point arises when the goods are placed at the disposal of the customer or when the services are completed.
• Prepayments or advanced payments create a tax point. In these cases, VAT is due when the prepayment is made. Exceptions apply to security deposits.
• If an invoice is issued either before or 14 days after the time of supply, the date of payment or the date of the invoice (whichever is earlier) is deemed to be the tax point. Taxpayers can apply for an exception to this rule.
• Import: Tax point occurs when the goods are imported according to the relevant import documents.
• Online sales: If the value of the sale of goods dispatched from outside the UK is below GBP 135, the tax point occurs at the moment of the sale, and not at the moment of import.

HMRC published a notice about applicable rules on tax point. This notice explains the general rules as well as the exceptions on tax point rules in the UK.