Quite often when you buy goods you will notice that they have the three letters VAT on them, which is often followed by a price increase of that item. VAT stands for Value Added Tax and is a tax charged to the final consumer of a product. VAT in this country is normally charged at 20% of the product’s cost. For example a £100 product would have £20 VAT due on it and therefore you will actually pay £120. The business that you paid for the item will at a later date pay the collected VAT to HM Revenue and Customs.
Not everything is liable to VAT at 20% and some things have no VAT to pay on them at all.
There are currently three rates of VAT:
Standard rate at 20%
Reduced rate at 5%
Zero Rate at 0%
The usual rule is that essential items such as baby clothes and simple foods are charged at the 0% rate, this helps make these everyday items more affordable.
The reduced 5% rate is usually for items which are beneficial such as utilities that provide heat and power to a home or some non essential medical products like nicotine patches.
The Standard rate is applied to just about everything else which are considered luxury items, such as cooked food, toys, tools and many other products.
If you would like to know more about which items are charged at which rate for VAT then you can find a list by clicking this link.
We hope the above has given you a greater understanding of VAT, but if you feel you have any questions regarding the above, please do not hesitate to contact us.