When a VAT-registered business issues an invoice, it's essential to apply the correct VAT rate. In the UK, the standard VAT rate is 20%, but there are also other rates and exemptions that businesses need to be aware of, including a reduced rate of 5% and a zero rate (0%).

Additionally, businesses should familiarize themselves with two other VAT categories:

• Exempt Supplies: These are items that do not attract VAT. Common examples include insurance, postage stamps, and healthcare services provided by doctors. Businesses that deal exclusively in VAT-exempt goods or services cannot register for VAT.

• Supplies Outside the Scope of VAT: These are goods or services that fall outside the UK VAT system, meaning VAT cannot be charged or reclaimed on them. Examples include goods or services provided outside the EU, statutory fees such as the London congestion charge, and items sold as part of a hobby.



If a business incorrectly charges VAT, it must take steps to correct the error. The resolution process can vary depending on when the mistake is discovered.

It’s also crucial for businesses to be aware of the penalties for charging VAT before they are officially registered. VAT registration is mandatory for businesses with a taxable turnover exceeding £90,000 annually, although businesses below this threshold can choose to register voluntarily.