In the United Kingdom, the current standard rate of VAT is 20%. This has been the VAT rate since January 2011; before this, it stood at 17.5%, although it had also been 15% for a short time at the end of 2008 and in early 2009.
There are three rates of VAT. VAT is applied depending on the product or service. The breakdown of VAT is as follows:
- The standard rate of VAT is 20%, and applies to most products and services.
- The reduced rate of VAT is 5%, which applies to services such as children’s car seats, mobility aids for the over 60’s, and household energy bills.
- Zero rate VAT is 0%, and applies to children’s clothes, books, and most food.
Businesses charge the applicable level of VAT depending on the services and products they provide. As most fall into the 20% category, VAT is usually easy to work out. If a business provides goods that aren’t applicable for VAT, they still have to include a record of this when they complete a VAT return.