A Complete Guide to VAT Codes: the Full List

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If you don’t have a clear idea of how VAT codes work, it could become more difficult to charge and pay the correct amount of VAT, which could leave your business liable to penalties and disrupt your cash flow. 

According to a study done by Intuit QuickBooks, 19% of small business owners worry that they have missed something on their VAT return, while 18% are anxious that they have made a mistake on their return.

Although VAT related mistakes aren’t just limited to VAT tax codes, they are known to sometimes confuse business owners. Having a solid understanding of how VAT codes work will help ensure smooth record-keeping and prevent any VAT related mistakes from being made. 

In this article, we’ll explain what VAT codes are, when exactly to use each code, and also provide a full list of commonly used VAT codes. 

Top Tip: Before diving into the complexities of VAT codes, you need to have a solid understanding of how VAT works. Learn more about what VAT is, how much VAT is, how to charge VAT and alternative VAT schemes for small businesses by checking out our article on everything you need to know about VAT 💡.

Table of contents

VAT codes explained

Simply put, VAT codes identify how much VAT should be paid on different goods and services. The codes are usually composed of a percentage and one or two letters but may appear differently depending on whether it’s used on the sales form or purchase form. 

As a VAT registered small business, you’re expected to charge output tax on the taxable goods and services you sell, collect the tax from your customers and then pay it to the government at set intervals during the year depending on which VAT scheme you opt for.

As a customer, you may also be charged input tax on taxable goods or services that you purchase for your business if your supplier is VAT registered. You can then reclaim this tax on your VAT return if the amount that you paid in input tax is more than the amount that you charged as output tax. If the opposite is true, you’ll pay HMRC the difference. 

VAT Codes - A screenshot illustrating how VAT works

Although the standard VAT rate is 20%, the amount does sometimes vary depending on the types of goods and services your business sells. This is where different VAT codes come into play. 

For example, if your business sells certain goods like children’s car seats or home energy, you’ll be eligible to pay a reduced rate of VAT at 5% since these goods are considered essentials. And if you sell other even more essential goods like children’s clothes and most food, you will be eligible to pay zero-rated or 0% of VAT. 

Top Tip: Be careful not to confuse zero-rated transactions with tax-exempt transactions. Exempt goods or services, like sponsored charitable events, are entirely out the scope of VAT and are considered non-vatable thus cannot count towards your taxable income. Reduced and zero-rated goods or services, although charged a low amount or no amount of VAT at all, are still considered taxable and thus must count towards your taxable income. To learn more about the difference between reduced and exempt items, read our guide to VAT exemption and who it applies to 🔍.

When it comes to filing your VAT return, it may seem like there’s a never-ending list of different VAT codes to choose from. If you select the wrong VAT code it may cause you to pay the incorrect amount and you may even overpay on your VAT return without realising. 

It’s essential to have a solid grasp of the most common VAT codes available so that next time you’re faced with filing your VAT return you know which codes to use where. 

Top Tip: Filing accurate VAT returns isn’t always a straightforward task and it can be easy to make mistakes. Knowing and understanding the most common VAT related errors will help you to file accurate VAT returns and avoid any undue penalties. Learn more in our guide to how to avoid and rectify common VAT mistakes 🌟.

Commonly used UK VAT codes

When you file your VAT return digitally, you can expect to see a dropdown menu of different VAT codes that may be relevant to the types of goods and services your business sells. 

Remember that as a general rule, VAT is set at a standard rate of 20%. It’s only in certain circumstances that your business may be eligible to pay a lower rate of VAT or be exempt entirely. Before you select a VAT code that’s different to 20.0 % S, it’s best to thoroughly read all of the details on the GOV.UK website so you can be sure you’re choosing the correct code. 

Top Tip: What happens if you sell some goods and services at the standard or reduced rates, and others that are entirely exempt? If that’s the case, your business is considered partly exempt and that means you have to pay extra attention to the details when calculating and filing your VAT return. To learn more, read our complete guide to everything you need to know about VAT partial exemption 📌.

Below are the most common UK VAT codes your business may come across when filing VAT returns. Keep in mind that if you’ve opted for the Flat Rate Scheme, VAT codes won’t always look the same because the amount of VAT that you charge to your customers will vary depending on the industry you’re in. 

VAT code Description Code used on sales form Code used on purchase form
20.0 % S Standard rate for VAT.
If your business is VAT registered, you must charge VAT at the standard rate on all goods and services unless they come under another category.

Before selecting any rate other than standard, check the HMRC website to find out the exact details on which VAT rate applies to any specific circumstances

VAT at 20% to Box 1

Net Sale to Box 6

VAT at 20% to Box 4

Net Purchase to Box 7

Exempt Exempt VAT rate. 
Some goods and services are completely exempt from VAT.

These include:

– Certain services from doctors and dentists
– Certain types of education and training
– Insurance – although there is an Insurance Premium Tax (IPT) that may apply

No VAT

Net Sale to Box 6

No VAT

Net Purchase to Box 7

5.0 % R Reduced rate VAT. 
A reduced rate of VAT applies to certain goods and services including:

– Smoking cessation products like nicotine patches
– Mobility aids
– Children’s car seats, booster seats and booster cushions
– Insulation

The reduced rate may only apply in specific situations or it may depend on who the customer is.

VAT at 5% to Box 1

Net Sale to Box 6

VAT at 5% to Box 4

Net Purchase to Box 7

0.00% Z Zero rate VAT.
Some goods and services are taxable for VAT but the VAT rate is zero percent. The zero rate may only apply in specific situations or it may depend on who the customer is.

Some examples include: 
– Low vision aids
– Printing of brochures/leaflets
– Babywear
– Motorcycle helmets

VAT at 0% to Box 1

Net Sale to Box 6

VAT at 0% to Box 4

Net Purchase to Box 7

No VAT Outside the scope of VAT.
Some goods and services are outside the scope of VAT and are not reported on a VAT return. 

This covers anything:

– Sold or supplied when you’re not registered for VAT and you don’t need to register for VAT
– Bought or sold outside the EU
– Bought and sold for your own personal use such as interests
– Sold or otherwise supplied but not as part of your business such as if you sometimes receive an income from hobbies

Other examples of goods and services outside the scope of VAT include:

– Low-cost welfare services provided by charities
– Charity donations given by a business when the donor doesn’t receive anything in return
– Tolls for bridges, tunnels and roads managed by public authorities
– Statutory fees and services – e.g. Congestion charge and MOT testing.

N/A N/A
20.0% RC SG Default reverse charge VAT for services. N/A +/- VAT at 20% to Box 1 & 4

+/- Net Purchase to Box 6 & 7

20.0% RC MPCCs Reverse charge for the purchase of mobile phones and computer chips. N/A +/- VAT at 20% to Box 1 & 4

Net Purchase to Box 7

For further information of what VAT rates your business is liable to pay, take a look at the full list of VAT rates on the HMRC website. 

Top Tip: To charge VAT, your business must first be VAT registered. Find out who needs to register for VAT and when, how to register for VAT and the benefits of registering in our guide to when you can begin charging VAT 📣.

Commonly used EC VAT codes

If your business is VAT registered and you purchase goods or services from another VAT registered business in an EC Member State, you should not be charged VAT if you provide the supplier with your VAT registration number. 

The supplier will then be responsible for rendering this charge nil through the reverse charge mechanism. A VAT reverse charge shifts the responsibility for the documenting of the VAT transaction from the vendor to the buyer for that particular good or service. In this way, it prevents vendors from having to register in the country where the supply is made. If the supplier does incur VAT charges on costs associated with the services or goods supplied under the reverse charge, they can get them back through an EU VAT reclaim

If the roles are reversed and you’re the supplier that is shipping goods to customers based in an EC Member State, you shouldn’t charge VAT if they supply you with a valid VAT registration number. You can check the VAT registration number on the European Commission website. 

You would then be the one to render the VAT nil by ‘charging’ your customer using the reverse charge procedure. The VAT invoice that you send in this instance must include the words ‘reverse charge’ to fulfil the legal requirement. 

Top Tip: VAT invoices must be generated correctly in order to be valid. This means that they must include details such as a unique invoice identification number, VAT rates, the net of VAT,  and a total amount due either including or excluding VAT, depending on the invoice type you choose. To ensure you don’t make a mistake, read our detailed guide to adding VAT onto invoices 🧾.

If you don’t receive a valid VAT number, you should apply the correct VAT rate. For transactions that qualify use one of the following EC VAT rates:

VAT Code Description Code used on sales form Code used on purchase form
20.0%ECG Intra EU B2B purchase of goods.
In business to business transactions, the customer must pay for any VAT due via the reverse charge mechanism. The customer has to act as though they are both the supplier and recipient of goods. 
N/A +/- VAT at 20% to Box 2 and 4+/- Net

Purchase to Box 7 and 9

20.0% ECS Intra B2B of services.
In business to business transactions, the customer must account for any VAT due using the reverse charge mechanism. The customer must behave as though they are both the supplier and recipient of the services. 
N/A +/- VAT at 20% to Box 1 & 4+/- Net

Purchase to Box 6 & 7

0.0% ECS Intra EU B2B Supply of Services.
This is used for Intra EU business to business sale of services.

If the EU customer isn’t VAT registered, the applicable UK VAT rate is charged.

It’s essential to note the place of supply on services.

– For B2B, the place of supply is where the receiver of services is based (customer).
– For B2C (business to consumer), the place of supply is where the provider is based (business). 

Net Sale to Box 6 +/- VAT at 0% to Box 1 & 4

+/- Purchase to Box 6 & 7

0.0% RC Intra EU Reverse Charge.
This is used for Intra EU B2B transactions on mobile phone and computer chips. 
Net Sale to Box 6 N/A

Wrapping up

If your business is VAT registered, it’s impossible to ignore VAT codes when it comes to filing your VAT returns. 

Knowing which VAT codes apply to each of the products and services your business sells will help you pay the correct amount of VAT, avoid any penalties and ensure the smooth running of your business’s finances. 

VAT codes along with the accompanying rules can be complicated to get your head around. If you need further clarity, consider hiring an online accountant to help you follow the regulations and pay the correct amount of VAT. 

If your business is VAT registered, Tide’s helpful business current account features will give you access to automated expense management and accounting software integration to help you manage your VAT payments. You can also easily add VAT to invoices that you can create from desktop or mobile through our free invoicing tools

Ready to get started? Open your free business bank account today and organise all your business finances in one app so you have more time to focus on growing your business.

Photo by Ivan Samkov, published on Pexels

Shahree Zin

Partnerships Manager and small business accounting advocate

Tide Team

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