What is VAT?

It is an indirect tax on the purchase price of certain products, services, and other taxable items purchased and sold in the United Kingdom. It is similar to the VAT system in the European Union, although it is now distinct.

So whether you're a corporation or an individual, you'll pay VAT on everything from stationery to cabs. Businesses with a turnover of more than £85,000 are required to register and charge VAT on all vatable supplies.

How is VAT charged?

If your turnover reaches the VAT threshold over a rolling 12-month period, whether you're a sole trader or a limited company, you must register for VAT. If your total VAT taxable turnover is expected to surpass £85,000 over the next 30 days, you must report it immediately.

You must charge VAT on vatable products and services if your business is VAT registered. You can reclaim any VAT you paid on all business purchases.

Once you've registered, you'll need to submit a VAT return, usually quarterly but it can be monthly or annually. It is where you report the amount of VAT you charged and paid.

You'd have to pay HMRC the difference if you charged more VAT than you paid. However, if the company has spent more than you charged, you may be able to reclaim the difference from HMRC. To know how much VAT you must pay, you can use a VAT checker.

What is the VAT rate in the UK?

The standard rate of VAT is 20%.

However, some goods and services are subject to a lower VAT rate of 5% (domestic fuel, mobility aids, and children's car seats) or 0% (for example, exports, most food items, children's clothing, and books).

VAT does not apply to all sales, and some are either VAT-exempt or are not subject to VAT. Insurance, health care, stamps, and education, for example, are all exempt.

Statutory fees, goods and services purchased and used outside the United Kingdom, and charitable donations, on the other hand, are not subject to UK VAT.

How to calculate VAT?

It's simple to figure out how much VAT you'll have to pay.

First, you find VAT inclusive prices by multiplying the VAT exclusive price with 1.2. Next, multiply the price (excl. VAT) by 1.05 to get the 5% reduced VAT rate.

Divide the total price (including VAT) by 1.2 for the regular (20%) rate or 1.05 for the reduced (5%) rate to arrive at VAT exclusive price.

You can use a UK VAT checker to check the validity of a VAT number.

What is my VAT number?

A VAT Number, also known as a VAT Registration Number, is a one-of-a-kind code assigned to a VAT-registered business.

It is nine digits long and usually begins with the letters GB. You can find your VAT number on the VAT registration certificate, issued by HMRC.

When submitting VAT returns, it's critical to double-check your VAT number. It is because HMRC may invalidate your tax input claim if you make mistakes on your VAT return.

What items are not subject to VAT?

Many products and services are not subject to VAT. There is no comprehensive list published by HMRC of such items.

Food and drink, for example, is ordinarily VAT-free; however, there are several limitations, such as hot food, crisps, alcoholic beverages, confectionery, and soft drinks. Many of these exceptions have their own exceptions!

There are far too many individual goods to list here, but we recommend consulting a VAT specialist for a more in-depth look at which items are VAT exempt or zero-rated.

How can you check if a VAT number in the UK is correct?

A VAT number is not a 'random' collection of numbers; there is a method to determine whether a VAT number is genuine. If a company's VAT number is invalid, it won't reclaim VAT on purchases.

To determine whether or not the VAT number is correct, complete the following steps:

• Vertically list the VAT number excluding the first two letters (i.e. country code).
• Then, starting with eight and down to 2, multiply each successive value of the VAT registration number.
• Add up all the values after multiplying each value of the VAT number.
• Finally, subtract 97 from the total till you get a negative answer. The VAT number's last two digits must match the negative value obtained. If the negative value doesn't match the last two digits, the VAT number is invalid.

For example, Deutsche Bank AG London's VAT number is GB 243609761.

• 2 x 8 = 16
• 4 x 7 = 28
• 3 x 6 = 18
• 6 x 5 = 30
• 0 x 4 = 00
• 9 x 3 = 27
• 7 x 2 = 14

The sum of the above calculation is 16+28+18+30+00+27+14=133. Next, subtract 97 until the figure goes negative, leaving 133-97-97=-61, corresponding to the VAT number's last two digits. It denotes that the VAT number is active.

Alternatively, you can check its validity by clicking here.

Why is it essential to check a VAT registration number?

If you've recently started working with a new client or supplier and want to see if the VAT registration number they gave is genuine, you can do so in one of two ways:

• Check on our VAT validity calculator
• Call the HMRC VAT helpline — During the week, you can call the HMRC VAT helpline at 03002003700 between 8 a.m. and 6 p.m. You can check only VAT numbers for businesses registered in the United Kingdom.
• You can check a VAT-registered number for any firm registered in the European Union using the VAT information exchange system (VIES).

Keep a copy of your search.

You should save or print the search results after verifying the authenticity of the VAT number. You can offer confirmation that the number was valid at the time of your search if HMRC questions you in the future.

What should you do if your VAT number isn't valid?

If the VAT number provided by your customer or supplier appears to be invalid, you must contact them to double-check whether the VAT number they provided is correct.

For example, if cross-checking the VAT number twice shows the same result, you should advise them that it is being reported as invalid. In this situation, the company will contact HMRC to inquire about the validity of the VAT number entered into the VAT information exchange system.

How to reclaim VAT?

You can use only a valid VAT invoice from a supplier to reclaim VAT. The following must appear on a valid VAT invoice:

• A unique invoice number.
• Business name and address
• VAT registration number
• Goods and services description
• Date

Before attempting to reclaim the VAT, you must include all of these details on the invoice. In addition, when reclaiming a substantial VAT amount, you must confirm that the VAT number is valid. HMRC has the authority to deny your request for VAT reclaim if you do not follow the requirements.