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
Foodstuff0% and 20%
Water supplies0% and 5%
Pharmaceutical products0% and 20%
Medical equipment for disabled persons0% and 5%
Children's car seats5%
Books on other physical means of support0% and 20%
Admission to cultural services (theatre, etc)20% or Exempt
Admission to amusement parks20%
Pay TV / cable20%
Writers / composers20%
Restaurant and catering services20%
Admission to sporting events20%
Medical and dental careEx
Shoes and leather goods20%
Clothing and household linen20%
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.
For more information on UK VAT deduction limits, please read the internal manual published by HMRC
UK Statute of limitations
Input VAT should be claimed in a VAT return filed no later than the end of the fourth year following the year during which the deductible VAT was due.
The time limit on the obligation to pay VAT is also four years. In case of fraud or deliberate failure to comply with VAT obligations, this period can be extended up to 20 years.
You can find more details about time limits on VAT assessments in the UK in the manual published by HMRC about this topic.
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 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.