How do I work out VAT when I sell a mix of standard, reduced and zero-rated items?

Full answer

Many small businesses sell goods that fall into different VAT categories, so you cannot apply one blanket rate. You charge 20% on standard-rated items, 5% on reduced-rate items (such as domestic energy and certain energy-saving products), and 0% on zero-rated items (such as most food, books and children's clothing). You then total the VAT across categories to find your output tax for the return. Worked example: a village shop has quarterly sales of GBP 30,000 standard-rated, GBP 4,000 reduced-rated and GBP 16,000 zero-rated. Output VAT is GBP 30,000 x 20% = GBP 6,000, plus GBP 4,000 x 5% = GBP 200, plus GBP 16,000 x 0% = GBP 0. Total output VAT is GBP 6,200. The shop deducts recoverable input VAT on its purchases to arrive at the amount payable to HMRC. A crucial point for new businesses: zero-rated sales are still taxable supplies, so all GBP 50,000 of standard, reduced and zero-rated turnover counts toward the GBP 90,000 registration threshold. By contrast, VAT-exempt supplies (such as some financial and insurance services) do not count toward the threshold and can restrict how much input VAT you reclaim under partial exemption rules. Keep your till or accounting system coded by rate so each line is captured correctly, especially for mixed baskets. Use the VAT calculator to apply 20% or 5% to net figures, or to strip VAT from gross takings. Because the precise classification of individual products can be tricky and occasionally changes, confirm the rate for specific items at gov.uk.

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