UK VAT guide - rates & compliance
Welcome to our comprehensive guide on VAT (Value Added Tax) for the UK, specifically designed to assist e-commerce sellers in Europe and beyond who are looking to extend their market reach into the UK. Post-Brexit, understanding the UK’s VAT system has become even more critical as it operates outside of the EU VAT regime. This guide aims to provide you with essential information on VAT rates for different categories, the process of registration, filing requirements, and more. Understanding the rate of VAT applicable to your goods or services is crucial for compliance and accurate accounting.
UK VAT rates
The UK has its own set of VAT rates which apply to various goods and services. As a VAT-registered business in the UK, it is imperative to charge the correct VAT rate and pay this amount to Her Majesty’s Revenue and Customs (HMRC).
The primary UK VAT rates are:
| Rate | Type | Products and Services |
|---|---|---|
| 20% | Standard rate | Most goods and services, including electronics, home and garden items, and many other categories, are subject to the standard rate of VAT, unless specified otherwise. |
| 5% | Reduced rate | Some home energy supplies, children’s car seats, and sanitary products, among other goods and services. |
| 0% | Zero rate | Books, newspapers, children’s clothes, and most food items. |
| N/A | Exempt | Some goods and services are exempt from VAT such as education services and most medical treatments. |
UK VAT Compliance: Filings & Registrations
UK VAT Number
For e-commerce businesses planning to engage in activities that incur VAT within the UK, obtaining a VAT number is a crucial first step.
How to register for VAT in the UK
The following steps outline the VAT registration process in the UK:
- Form Submission for VAT registration must include accurate business details and an understanding of VAT rules to ensure compliance: Complete the VAT registration application online through the HMRC website. This is the first step towards becoming VAT registered and required to charge VAT on the goods or services sold.
- Documentation: Provide any additional required documentation, which could include company details and proof of identity for the directors. Additionally, ensure all invoice details comply with the UK government VAT rules.
- Application Review: HMRC will review your application, which could take up to 4 weeks or more. Application Review will include a thorough check to ensure your business meets the VAT threshold and is eligible to charge VAT.
- VAT Number: Upon approval, you will be given a UK VAT number.
Where to register for VAT in the UK
The VAT registration in the UK can be started online via the HMRC website, which you can access here.
How to submit UK VAT filings
VAT returns should be submitted according to the stipulated deadlines to avoid penalties. Details include:
- Electronic Filing: VAT returns must be filed electronically, typically through the HMRC’s Making Tax Digital service. This ensures that businesses are up to date with VAT rules and can reclaim VAT efficiently.
- Submission and Payment: VAT returns and payments are generally due quarterly, although some businesses may qualify for the Annual Accounting Scheme or the VAT Flat Rate Scheme.
- Annual VAT Summary: Businesses may need to complete an annual summary of their VAT accounts.
VAT-Related Fines in the UK
Non-adherence to VAT regulations can result in fines:
| Infraction Type | Penalty Description | Fine Amount / Penalty |
|---|---|---|
| Late Filing | Submitting a VAT return after the deadline | A percentage of the unpaid VAT (surcharge system based on history) |
| Late Payment | Failing to pay the VAT due on time | A percentage surcharge of the unpaid VAT due |
| Incorrect Filing | Making mistakes on your VAT return | Penalties can range, based on whether HMRC views the error as careless or deliberate |
| Failure to Register | Not registering for VAT when required | Fines can be up to 100% of the VAT due, plus the VAT owed |
How long do I have obligation of proof?
UK businesses must keep VAT records for at least six years.
VAT Threshold in the UK
The VAT registration threshold in the UK is as follows:
- A business must register for VAT if its taxable turnover is more than £85,000 over a rolling 12-month period.
- There is no VAT registration threshold for non-UK businesses making taxable supplies in the UK; they must register immediately.
It’s important to note that these rates and thresholds are subject to changes, and it is advisable to verify the current thresholds through the HMRC website or with a tax professional.
With the complexities of the UK VAT system, especially post-Brexit, e-commerce businesses may find it beneficial to work with tax advisors or VAT compliance service providers to ensure accurate and timely management of their VAT obligations.
