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UK VAT rate changes for 2021

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Last editedJun 20212 min read

The Brexit transition period ended on 1 January 2021, bringing with it some changes to the VAT UK system. Here’s what you need to know about VAT changes in the UK this year, including the current rates, obligations, and how to work out what you owe.  

How much is VAT in the UK?

To begin with, we’ll take a closer look at the current UK VAT rates. There are three different VAT rates that might apply depending on the type of goods and services sold.

Standard UK VAT rate

The standard rate is 20%, which applies to most goods and services. This includes any goods sold below the distance selling threshold supplied between Northern Ireland to non-VAT registered EU clients.

Reduced UK VAT rate

The reduced rate is 5%, which applies in select conditions. A few examples of reduced rate transactions include:

  • Children’s car seats

  • Domestic fuel and power

  • Mobility aids for seniors

Zero UK VAT rate

The third category is the Zero rate, which means that you charge your customer 0% in VAT. However, these items should still be reported on your VAT return. Examples of zero-rated items include:

  • Children’s clothing and shoes

  • Books and newspapers

  • Most goods exported from Great Britain to countries outside the UK

  • Most goods exported from Northern Ireland to countries outside the UK and EU

Remember, these VAT rates are subject to change, so you should keep track of the latest news when answering the question of how much is VAT in the UK.

2021 VAT changes UK

Now that we’ve looked at the rates, how have the rules changed since the start of this year? To begin with, HMRC has reformed ecommerce by making online marketplaces responsible for VAT on some transactions. Here are some of the major ecommerce rule changes in relation to VAT:

  1. There is no longer a £15 VAT exemption on imported goods sold online to UK customers. Instead, all imports are charged at the 20% standard UK VAT rate.

  2. Sales or supply VAT must be charged at the POS on imported sales valued under £135. This helps cut down on customs paperwork when the items arrive.

  3. Online marketplaces are now responsible for taking care of VAT obligations on behalf of their third-party sellers. This includes imported sales valued under £135, as well as any sales within the UK by overseas third-party sellers.

These reforms are designed to streamline the customs process for imported goods, while doing away with the VAT exemption on low-cost imports that put UK retailers at a disadvantage.

Northern Ireland and VAT reforms

In Northern Ireland, the rules are slightly different as the country’s been put into a dual position between the EU and UK VAT systems. There are two main differences to be aware of:

  1. For goods transported from NI sellers to EU buyers, EU VAT rules apply.

  2. If an overseas seller wishes to sell Northern Irish goods to a Northern Irish consumer using an online marketplace, the VAT reporting is the responsibility of the seller rather than the online marketplace.

Charging VAT on exports to the EU

Are you wondering how to work out VAT UK if you’re selling goods to EU consumers? The good news is that VAT registered UK businesses will continue to be able to sell goods to EU customers with zero rates. From 1 January 2021, EU member states will treat these goods the same way that they would goods entering from any other non-EU country, charging import taxes upon arrival. 

When it comes to selling services rather than goods, UK suppliers will now be treated as any other supplier from outside the EU. This means that they’re subject to “place of supply rules”, which is usually where the customer resides. If you’re figuring how to work out VAT UK on services for EU clients, these taxes are usually due in your client’s resident country.

The bottom line

The biggest changes to be aware of relate to ecommerce and online marketplaces. When answering the question of ‘how much is VAT in the UK’ the answer will depend on your business platform, size, and where your customers are located.  These rules can be complicated so it’s always worth consulting with a tax professional for clarity.

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