Value Added Tax

VAT Services For UK Businesses in Dubai , UAE

Value Added Tax in the UK

Value Added Tax (VAT) in the United Kingdom is a consumption tax applied to most goods and services sold domestically and imported into the UK. The standard VAT rate is 20%, with reduced rates of 5% and 0% for certain goods and services. VAT is one of the primary sources of revenue for the UK government, helping fund essential public services such as healthcare, education, infrastructure, public transport, waste management, and policing.

VAT is charged at each stage of the supply chain, with businesses collecting the tax on behalf of His Majesty’s Revenue and Customs (HMRC). The ultimate cost is borne by the end consumer.

VAT for Businesses

Registering for VAT

A business must register for VAT if its taxable turnover exceeds £90,000 in a 12-month rolling period (current HMRC threshold).

Businesses can also register voluntarily if their turnover is below the threshold — often beneficial for reclaiming input VAT on business expenses, especially for start-ups or those making significant investments.

VAT-related responsibilities of businesses

VAT-registered businesses in the UK are required to:

• Charge VAT on taxable goods and services supplied.

• Reclaim VAT paid on eligible business-related goods and services.

• Maintain accurate financial records for at least six years.

• Submit VAT Returns (usually quarterly) via Making Tax Digital (MTD) compatible software to HMRC.

• Pay any VAT due to HMRC or reclaim any overpaid VAT.

If you have collected more VAT than you have paid on purchases, the difference must be remitted to HMRC. If you have paid more VAT than collected, you can request a refund.

Zero-rated sectors

These supplies are taxable but at a 0% rate, allowing businesses to reclaim input VAT:

1. Most food items (excluding catering and certain luxury items).
2. Children’s clothing and footwear.
3. Books, newspapers, and printed publications.
4. Passenger transport services (e.g., trains, buses, ferries, flights within the UK).
5. Certain exports outside the UK.
6. Supply of certain education services, and supply of relevant goods and services.
7. Supply of certain healthcare services, and supply of relevant goods and services.

VAT-exempt sectors

Some supplies are exempt from VAT, meaning no VAT is charged and input VAT generally cannot be reclaimed:

1. Financial and insurance services.

2. Education and training provided by eligible bodies.

3. Healthcare services provided by registered professionals.

4. Sale or lease of residential property (with certain exceptions).

5. Postal services provided by Royal Mail.

Partial exemption

If a business makes both taxable and exempt supplies (e.g., in the financial sector), it may need to apportion input VAT between them. HMRC requires businesses to calculate a partial exemption percentage to determine recoverable VAT. Alternative methods can be agreed upon with HMRC if more appropriate.

Government Entities and VAT purposes

Most goods and services supplied by public sector bodies are subject to VAT in the same way as private businesses, to ensure fair competition. Some services provided by local authorities or government departments may be outside the scope of VAT or exempt, depending on the nature of the activity.