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Hello, I’m Sara, a Chartered Accountant who transitioned into running an online business. I understand just how daunting and confusing it can be to take the leap into self-employment. The questions, the uncertainties, and the steep learning curve are all challenges I’ve faced myself. Whether you’re in the early stages of planning to go self-employed, just dipping your toes into making money on your own terms, or already fully committed, this blog is dedicated to helping you every step of the way. Through detailed guides, expert tips, and practical advice, I aim to be your go-to resource. From mastering financial management and navigating tax obligations to setting up the foundations of your business, I’m here to provide you with the clarity and confidence you need to thrive in your self-employment journey.
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Self-Employed Tax Explained
Understanding the Three UK VAT Rates and When They Apply
Friendly Disclaimer: While I am an accountant, I’m not your accountant. The information in this article is accurate but intended for general guidance. Each situation is unique, so please use your own judgment or consult a qualified professional to ensure compliance and avoid penalties.
1. What are the VAT Rates?
In the UK, businesses registered for VAT must charge VAT on their sales according to one of three rates, depending on the type of product or service:
1.1 Standard Rate (20%) Most goods and services are subject to the standard VAT rate of 20%. Unless your product or service qualifies for the reduced or zero rate, you will need to apply this rate.
1.2 Reduced Rate (5%) Certain items are charged at a reduced rate of 5%, which helps lower the cost for the public. These include:
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Female sanitary products
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Children’s car seats
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Domestic fuel and power
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Mobility aids for people over 60
1.3 Zero Rate (0%) Zero-rated goods are still taxable but are charged at 0%, meaning VAT is not added. These goods and services must still be reported on VAT returns. Zero-rated items include:
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Some food products
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Coffee
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Books and newspapers
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Children’s clothing and shoes
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Most exports to non-EU countries
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Goods supplied to VAT-registered businesses in the EU (with a valid VAT number)
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Services supplied under the reverse charge mechanism
2. VAT Exempt
VAT exempt items are not subject to VAT, meaning they do not appear on VAT returns and businesses cannot claim back VAT on related expenses. Businesses that supply VAT exempt products or services cannot register for VAT.