There are three rates of VAT. The rate to be charged by the business is predetermined based on the item that is being sold or the service being offered. The rates are:

  • Standard rate at 20% - this applies to the majority of goods and services
  • Reduced rate at 5% - gas and electricity used in the home for example
  • Zero rate at 0%  - includes books and newspapers, children's clothing, public transport and food (excluding meals-in and takeaways).
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Quiz: Can you calculate VAT?

You have sold two products. The net sales price for the first product is £375. The VAT will be charged at the reduced rate. What would the amount of VAT for this item be?

This incorrect.  The reduced rate is charged at 5%. The figure above would be if the VAT was charged at the standard rate of 20%. The correct calculation is: £375 x 5% = £18.75 Net = £375 VAT = £18.75* Gross = £393.75

This is the right answer. The reduced rate is charged at 5%. The calculation is as follows: £375 x 5% = £18.75.  Net = £375     VAT = £18.75* Gross = £393.75

The sales price for the second product includes VAT charged at the standard rate. The total is £600. What would the amount of VAT for this item be?

This incorrect.  The standard rate is charged at 20%. The calculation is as follows: £600 / 120 x 20 = £100 Net = £500 VAT = £100* Gross = £600

This is the right answer. The standard rate is charged at 20%. The calculation is as follows: £600 / 120 x 20 = £100 Net = £500 VAT = £100* Gross = £600

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