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).
This article at a glance
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.
What is VAT?
VAT (Valued Added Tax) is a tax on goods and services.
Do I have to register my business for VAT?
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.
How much is VAT?
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:
- Goods you export from Northern Ireland to a place outside the EU and UK
- Goods you export from Great Britain (England, Scotland, and Wales) to a place outside the UK
- Goods you supply from Northern Ireland to an EU business that is VAT registered
What do I need to include in a VAT invoice?
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:
- Invoice date
- Unique invoice number
- Your business’s name and address
- Your business’s VAT number
- Customer name and address
- Description of goods and services
Each line item in your invoice must detail:
- Price and quantity of goods or services
- Pre-VAT price
- VAT rate
- Total amount of VAT added
- Total amount due
- Payment due date
VAT changes post-Brexit for UK SMEs
Things are more complex if you import and export goods regularly to or from the EU.
New EU VAT rules for low-value imports
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.
EU export VAT reform
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.
Stress-free global trade
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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Author: Melissa Yeo
Illustration: Kate Faldina