VAT - Value Added Tax

VAT is a tax that you pay when you buy goods and services in the European Union (EU), including the United Kingdom. Where VAT is payable it's normally included in the price of the goods or service you buy. Some goods don't attract VAT.

When do you pay VAT and how much?

Each EU country has its own rates of VAT. In the UK there are three rates.

Standard rate

You pay VAT on most goods and services in the UK at the standard rate, which is 15 per cent. The standard rate will increase to 17.5 per cent on 1 January 2010.

Reduced rate

In some cases, for example childrens car seats and domestic fuel or power, you pay a reduced rate of five per cent.

Zero rate

There are some goods on which you don't pay any VAT, like:

  • food
  • books, newspapers and magazines
  • children's clothes
  • special exempt items - for example equipment for disabled people

How VAT is worked out

When someone charges you VAT they multiply the original ('net') price of the item or service by the VAT rate to calculate the amount of VAT to charge. They then add the VAT amount to the net price to give the 'gross' price - the price you pay.

VAT on bills and receipts

Most retail prices on bills and receipts include VAT - it is not shown separately. However some may have a line under which they show the VAT element. This doesn't mean you're being charged extra - it just shows how much of the price is made up of tax.

Non-retail invoices from VAT-registered suppliers (for example from builders or painters and decorators who are VAT registered) must show a separate amount for VAT. They must also show the 9-digit VAT registration number of the business.