Dictionary
Debitoor's accounting dictionary
VAT rate

VAT rate – what is VAT rate?

The VAT rate refers to the amount of VAT that is placed on a product.

With Debitoor invoicing software, it’s easy to apply the correct VAT rate to your invoices. Try Debitoor for free for 7 days.

The VAT rate is given as a percentage and must be recorded on a VAT invoice.

Different VAT rates in the UK

In the UK, different VAT rates may apply to a product or service, depending on what it is. There are 3 types of VAT rate: the standard rate, the reduced rate, and the zero rate.

Standard VAT

At the moment, the standard rate of VAT charged on purchases in the UK is 20%. What this means is that if a product is priced at £100 and the VAT rate on this item is 20%, the consumer will pay £120 to the merchant. The business therefore keeps £100 and remits £20 to the government.

It’s EU law that countries within the EU should not charge a standard rate of VAT that is lower than 15%.

Reduced VAT rate

A reduced VAT rate is charged on specific items, for example, sanitary products, energy-saving measures and children’s car seats. The reduced VAT rate on these things is currently 5%. A purchase of £52.50 bought at a reduced VAT rate would therefore mean the seller receives £50 and the government receives £2.50 in VAT.

Zero VAT rate

There is also a zero rate. As the name suggests, is charged at 0%. The zero rate is applied to life necessities. Included in this category are things like most food, books, newspapers, medical equipment and prescription medications, and children’s clothes. It’s important to remember, even though there’s no VAT charged on these items, you’ve still got to record it on your VAT return.

There are also some things that are exempt from VAT. Things like postage stamps fit within this category. By being exempt from VAT, they’re charged also at 0%, but because they are exempt and not zero-rated, these things do not need to be recorded in your VAT return and are not counted in your taxable turnover.

Applying a VAT rate to an invoice with Debitoor

When you create an invoice with Debitoor, the system will automatically apply the appropriate VAT rate. This will normally be 20% when you are invoicing a customer in the UK. Using the drop-down menu under ‘VAT’, you are then able to edit this if your invoice is for something where the standard VAT rate does not apply, for example, medical equipment.

When you invoice your customer, you must also select the country of that customer. If they are not based in the UK, the system will automatically change the VAT rate to 0%. If the customer is based in the EU, the transaction may be subject to reverse charge and you should then include a line that states this on the invoice.