Ever made a purchase and wondered why there’s additional tax added to the final price? VAT is commonly added to shopping receipts in the UK, yet many may not know what it is and how it works.
This article includes tips, suggestions and general information. We recommend that you always do your own research and consider getting independent tax, financial and legal advice before making any important decision.
Learn the basics of VAT in this guide.
Value Added Tax — more commonly known as VAT — is a consumption tax that may be charged to goods and services sold in the UK and elsewhere. It’s typically applied whenever value is added to a given product between the point of production and the point of sale.
It’s important for individuals to be aware of VAT as the tax can affect the end price of goods and services. Learn more finance terminology.
VAT exists to generate tax revenues. Businesses and suppliers registered for VAT are required to charge consumers VAT on every product or service they provide. They report this amount to the HM Revenue & Customs, which collects it on behalf of the government.
Here are a few examples of taxable areas. Keep in mind this is not an exhaustive list.
On the other hand, VAT-exempt goods and services may include financial services, education and training, charity events, and healthcare. Check with local government organisations for a current list of VAT-taxable and VAT-exempt goods and services.
VAT is applied to goods and services at three different rates in the UK: standard, reduced, and zero.
VAT impacts individuals’ day-to-day expenditure by increasing the final price of goods and services. However, the amount of VAT paid on a given item depends on what it is and the rate that applies to it.
For example, if someone purchases a new car, they may pay VAT at the standard rate — which would be 20% of the total price. This means that for every £100 that the car is worth, £20 in VAT will be added.
Here are a few potential ways people may save on VAT:
Get more practical tips to save money when shopping.
VAT is an indirect consumption tax that applies to many goods and services purchased in the UK. Though it can be confusing, understanding how VAT works can help individuals shop smart. Explore more strategies for managing finances.
If you accept cookies, we'll use them to improve and customise your experience and enable our partners to show you personalised PayPal ads when you visit other sites. Manage cookies and learn more