What are the Reduced VAT Rates?

What are the reduced VAT rates? VAT stands for value-added tax, and it is a consumption tax imposed on consumers at each step of goods production in the UK. Companies registered for VAT must impose it on all their products and then pay it to HM Revenue & Customs (HMRC). However, there is some relief for companies; they can claim their business expense from the VAT they are paying to HMRC. In today’s guide, we will talk about what are the reduced VAT rates and how they work for you.

 

What are the Reduced VAT Rates in the UK?

What are the reduced VAT rates? There are three types of VAT imposed on the supply chain in the UK. They depend on the type of goods and services being provided.

  • Standard: It is 20% charged on most goods and services provided by companies in the UK.
  • Reduced: It is 5% charged on certain goods and services such as home energy, child products such as car seats, health products, fuel, heating, or residential property conversions. The reduced VAT rate on these categories improves the living quality of the public.
  • Zero: There is a 0% tax on child products and clothing. The categorised VAT on goods and services indicates the government’s concern regarding the well-being of the public.

What are the VAT Rate Conditions?

The VAT rates depend on:

  • The company and the consumer it is supplying the products to
  • The quality and presentation of products
  • Location of goods distribution
  • If the goods are being sold along with other products

What are the Reduced VAT Rates on Certain Categories?

Following are the categories of products with reduced VAT rates according to the UK government website.

1- Energy-Saving Materials

A reduced VAT rate is charged to the energy-saving materials that are permanently installed in the residential buildings. Reduced VAT is charged if the total cost of installing such products is less than 60% of the total cost (if VAT is excluded from the total cost).

2- Mobility aids for elderly people

A reduced VAT of 5% is applied on elderly products if you are over 60 years of age. To get reduced VAT, you have to sign an undertaking before installation of the product or when the product is delivered to you. The products included are:

  • Grab rails
  • Ramps, built-in bath seats, lifts, etc.

3- Power Usage

Electricity and gas usage are exempted from standard VAT in the UK only if they are used for domestic and non-business purposes or when they are used in charity. If the total usage of electricity and gas does not exceed the limit mentioned for the eligibility of reduced VAT. Similarly, other fuels like heating oil and solid fuel for non-business, domestic, and charity usage are exempted from the standard VAT of 20%.

4- Building and Construction

For building and construction under VAT notice 708, a VAT of 5% is applicable if you are renovating a dwelling and increasing the number of units in the building area. Reduced VAT is also applicable if you are renovating a building that was empty or remained unused for the past two years.

A reduced VAT of 5% is applicable if you are converting an area into a single-household dwelling. The reduced rate is also applicable to construction conversions in the Isle of Man. The details can be taken from the Isle of Man Customs and Excise Advice Center.

5- VAT on vehicles

Holiday vehicles in the UK are not exempt from VAT. A reduced VAT of 55 is applicable on holiday caravans that are more than 7 meters long and more than 2.55 meters wide.

6- Protective and safety equipment

Under VAT notice 701/23, certain protective and safety equipment also have reduced VAT of 5% in the UK. The reduced VAT applies to motorcycle helmets, children’s car seats, headgear and footwear for children, and children’s protective clothing comes under the umbrella of reduced VAT. Other items included are children’s bare-wheeled frameworks, such as pushchairs and prams. The child travel accessories such as carrycots with restraint straps are also exempted from the standard VAT.

Are you looking for professional tech-savvy tax advisors and accountants in the UK to guide you? Contact us now!

 

The Bottom Line

In the UK, the value-added tax is divided into three categories based on different products and services. The three divisions of VAT are standard (20%), reduced (5%), and zero. The UK government has carefully imposed reduced VAT on certain classes of products so that both the government and the public are benefitted. The reduced VAT applies to the construction and renovation of residential buildings and their renovation to a certain extent after a defined period. Power and heating fuels are also imposed with 5% VAT only, such as electricity and gas used in residential dwellings, non-business buildings, and buildings running on charity. Reduced VAT is also applicable on holiday vehicles that are longer than 7 meters and wider than 2.55 meters. To learn more on what are the reduced VAT rates, reach out to us.

Disclaimer: All the information provided in this article on reduced VAT rates, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.

Feeling Lost with Finances?
We're Here to Help!

Tax filings
0 +
Accounts filings
0 +
Reviews
0 +

Refer Clients & Earn Up to 10% – Join Our Reward Program!

Request A Callback