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4 Min. Read

VAT Tax Codes: A Complete Guide

VAT Tax Codes: A Complete Guide

This guide is for you if you have VAT goods to report on your HMRC return. The codes below refer to what you should declare on your VAT return form. However, if you use our accounting software, we can automatically do this for you! Along with easy expense tracking, invoicing tools and client collaboration tools. Our software has it all. Read more about how we can help you submit accurate VAT returns.

Here’s What We’ll Cover:

What Is Value Added Tax?

What are VAT Tax Codes?

VAT Tax Codes Guide

What Is Value Added Tax?

Value Added Tax is a consumption tax added to certain goods and services in the UK and Europe. To be VAT registered in the United Kingdom, you must have an annual taxable turnover higher than £85,000. VAT charges fluctuate from country to country. The applicable VAT rate also varies depending on the taxable purchases.

VAT registered businesses in the UK:

  • Must charge VAT on their goods and services at the appropriate rate. You can find out the rate on the HMRC website
  • May reclaim VAT on goods and services they’re purchased from other VAT registered entities
  • Must account for import VAT on their VAT return

What Are VAT Tax Codes?

VAT codes identify the amount of VAT owed on a good or service. It’s usually a percentage followed by one or two letters.

On a purchase form or sales form, the code will look different to the short code. Just to make VAT accounting even more confusing!

VAT Tax Codes Guide

Below is a list of common VAT codes relevant to you when you’re filing your return to the HMRC. You can refer to the HMRC website for the most up to date information so that you create accurate VAT returns.

Bear in mind that if you’re enrolled in the Flat Rate Scheme, the VAT codes could be different. It varies from industry to industry. Again, check with the HMRC guidelines.

20.0% S - Standard Rate VAT

The standard VAT rate in the UK is 20%. All UK VAT registered businesses must charge this rate unless they qualify for a different category. Always check with the HMRC guidelines before charging a different rate other than the standard.

VAT code

Code for sales form

Code for purchase form

20.0% S

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

Certain goods and services are exempt from VAT. These typically include:

  • Insurance
  • Medical health services
  • Educational courses and training

VAT code

Code for sales form

Code for purchase form

Exempt

No VAT

Net Sale to Box 6

No VAT

Net Purchase to Box 7

5.0% R - Reduced Rate

Reduced rate VAT applies to:

  • Nicotine patches and other anti-smoking aids
  • Mobility aids
  • Child car seats and boosters
  • Insulation

VAT code

Code for sales form

Code for purchase form

5.0% R

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

Zero rate VAT is very specific. It only applies to certain situations and depends on who the end customer is. For example, you can expect zero percent VAT on:

  • Aids for the blind
  • Babywear
  • Motorbike helmets
  • Brochure and leaflet printing

VAT code

Code for sales form

Code for purchase form

0.00% Z

VAT at 0% to Box 1

Net Sale to Box 6

VAT at 0% to Box 4

Net Purchase to Box 7

20.0% RC SG - Default reverse charge VAT for services

Default reverse charge for goods you’ve bought in another EU country but would be classed at the standard UK rate.

VAT code

Code for sales form

Code for purchase form

20.0% RC SG

N/A

+/- VAT at 20% to Box 1 & 4

+/- Net Purchase to Box 6 & 7

20.0% RC MPCCs - Domestic reverse charge VAT for computers

Domestic reverse charge for UK purchased mobile phones and computers

VAT code

Code for sales form

Code for purchase form

20.0% RC MPCCs

N/A

+/- VAT at 20% to Box 1 & 4

Net Purchase to Box 7

No VAT - Out of Scope of VAT

You don’t need to report out of scope VAT items on your VAT return.

No VAT applies in any of the following situations:

  • Goods sold when you’re not registered for VAT/you don’t need to register for VAT
  • Goods and services bought or sold outside the EU
  • Goods and services bought and sold for personal use
  • Goods sold or otherwise supplied but not as part of your business
  • Welfare services by charities
  • Charity donations
  • Statutory services e.g. MOT testing
  • Transportation tolls

For more tax guides like this one, check out our resource hub!


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