Value Added Tax (VAT) is a tax on goods and services. All businesses that sell to UK-based consumers must register for VAT.
This is where things get complex. VAT isn’t a one-size-fits-all tax — some goods aren’t taxed at all. Moreover, the UK’s withdrawal from the EU has led to some significant changes to VAT for UK exporters.
This article aims to simplify things for UK exporters, whether it’s filling out a VAT invoice or registering with Her Majesty’s Revenue and Customs (HMRC).
All businesses with an annual turnover of over £85,000 that provide goods and services to UK-based consumers must register for VAT. This article will cover the differences between zero-rated VAT and standard-rated items, as well as VAT invoices and post-Brexit VAT regulatory changes.
VAT (Valued Added Tax) is a tax on goods and services.
It’s mandatory for all businesses with annual turnovers exceeding £85,000 to register for VAT. Failing to register will lead to penalties. Often this leads to investigations by HMRC into your business — that’s the last thing you want.
This rule applies irrespective of the location of your business. In other words, you will have to register for VAT if you sell goods to UK customers.
Here’s a breakdown of VAT rates:
Rate Percentage of VAT Category Standard 20% Most goods and services Reduced 5% Certain goods and services e.g. power bills Zero 0% Zero-rated goods and services e.g. foods and beverages How do I charge VAT?
Include VAT in the product’s final price. Here’s a quick formula to add VAT to your prices.
To calculate a price with the standard VAT rate of 20%, simply multiply your price by 1.20. For instance, Stephanie sells a hair straighter for £60 before VAT. To calculate the final price that includes VAT, she will have to follow the following formula:
£60 x 1.20 = £72
The VAT-inclusive price to charge is £72.
The same logic applies to the reduced rate. A reduced VAT rate of 5% would mean you multiply your price by 1.05. For instance, Cassandra sells a bracelet at a reduced rate of £20. In this case, her VAT-inclusive price will be:
£20 x 1.05 = £21
Zero-rated products are still subject to VAT and you must charge a 0% VAT rate, so the price remains the same. Items with zero rate include:
A VAT invoice informs the customer of the VAT they’re paying for their purchase. Furthermore, some of your customers may be able to reclaim the VAT on their tax returns. Therefore, you will have to issue VAT invoices if your business is VAT-registered.
Include the following details:
Each line item in your invoice must detail:
Things are more complex if you import and export goods regularly to or from the EU.
Since the UK left the EU, the countries within the EU now get the same VAT treatment as those located outside the EU. As such, goods valued above £135 and traded in and out of the EU must include import VAT.
When your goods enter free circulation — for instance, goods processed at a UK port — they will be subject to import VAT. At this stage, your business can opt to pay import VAT and reclaim it from HMRC later on with the C79 certificates.
Your exports to the EU will be zero-rated. In short, you don’t pay UK VAT on your products — but you must include VAT in your accounting.
Trade became more complex when the UK left the EU. However, navigating VAT in a post-Brexit world is crucial to growing your business.
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