United Kingdom (UK)

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VAT-registered businesses outside of the European Union are eligible to recover VAT on business costs from United Kingdom (UK) under the 13th Directive.

United Kingdom VAT Rates

Since 1973, the United Kingdom has been levying value-added tax (VAT) on the majority of goods and services within its borders. The UK VAT purposes include generating tax revenues for the UK government and replacing the purchase tax. 

When it was first unveiled, the UK VAT rate was 10%, though it has fluctuated during times of economic boom and bust. The most recent rate change took place at the beginning of 2011 when the standard rate increased from 17.5% to 20% (where it remains today). A reduced VAT rate of 5% applies to certain goods and services. 

More recently, VAT in the UK has been complicated by the Brexit referendum and the UK’s subsequent split from the EU. Time will tell if this political shift will affect rates.

VAT UK Rates: Standard, Reduced, and Zero

The United Kingdom splits its VAT rates into three categories:

• Standard rate (20%) – Most goods and services fall under the standard rate.
• Reduced rate (5%) – A handful of goods and services qualify for a reduced rate, including some products related to energy and wellbeing.
• Zero rate (0%) – Select goods and services, including food, are referred to as “zero-rated.”

As a non-UK company traveling or doing business in the UK, you may be eligible to receive a refund on some of your expenses. When it comes to a potential VAT refund UK regulations will dictate how much you’re owed.

How to Pay VAT Bill in the United Kingdom

Typically, VAT-registered businesses need to submit their VAT returns to HM Revenue and Customs four times per year. However, if your estimated VAT taxable turnover is less than or equal to £1.35 million, you can join the Annual Accounting Scheme and submit once per year.

For quarterly VAT submissions, the deadline is generally one month and seven days after the reporting period. For the Annual Scheme, your due date is two months after the end of your accounting period. You can sign in to your VAT UK account to determine when your submission is due.

To complete a same-day or next-day payment, you can use the following:

• Automated payment (CHAPS)
• Online or telephone banking (Faster Payments)
• Your online bank account

For payments processed in up to three working days, your options include:

• Bank transfer (Bacs)
• Direct debit
• In-person payments at your bank or building society
• Online payments via debit or corporate credit card
• Standing order (if using the Annual Accounting Scheme or Payments on Account)

There are penalties for not submitting on time, so be sure to select a system that works with your timeline.

United Kingdom VAT Compliance

All VAT-registered businesses must comply with certain VAT rules and regulations. Most requirements involve the proper filing and retention of invoices and records. For example, all invoices must be properly signed, and you must hold onto all relevant documents and accounts for at least seven years.

Additionally, all VAT submissions must use approved foreign currency rates (if applicable). Should there be any issues with VAT compliance, the organization in charge of VAT in the UK (HMRC) may schedule a compliance check.

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Sources:

BBC. What is VAT and how does it work? https://www.bbc.com/news/explainers-53334098

GOV.UK. VAT Rates. https://www.gov.uk/vat-rates

GOV.UK. VAT Annual Accounting Scheme. https://www.gov.uk/vat-annual-accounting-scheme

GOV.UK. Pay your VAT bill. https://www.gov.uk/pay-vat

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