The Prime Minister confirmed that leaving the EU now means Britain has the freedom to set its own VAT rates.
However, Boris Johnson dismissed calls to scrap the 5% tax on energy bills, saying it will not help those under pressure.
This came following warnings that energy bills are to soar this April when the price cap is reviewed.
But what is VAT and how does it work? Here’s everything you need to know about the tax.
What is VAT?
VAT stands for Value Added Tax and is a general tax placed on almost all goods and services.
When you see a price for something in a shop, any VAT will already have been added.
VAT rates are percentage based, which means the greater the price, the more the consumer pays.
There are various items for which you do not have to pay the tax, such as most supermarket food, children’s clothing, newspapers and magazines.
What is the standard rate?
The standard rate of VAT increased to 20% on 4 January 2011 (from 17.5%).
Some things are exempt from VAT, including postage stamps, as well as financial and property transactions.
What are the different VAT rates?
VAT rates vary according to the goods and services supplied.
There are four categories:
There is no VAT charged on exempt supplies including education, finance, insurance, and the services of doctors and dentists (but not some other services, such as osteopaths).
Charged at 0% – it is applied to most food, books, newspapers and children’s clothes.
It is charged on sanitary products, energy saving measures and children’s car seats and is set at 5%.
Now 20%, it is applied to all goods and services which do not fall into the other three categories.
The rate was temporarily lowered to 15% in 2008 during the recession to help declining consumer confidence.
However, on 1 January 2010 it returned to the original rate of 17.5%.
How does it work?
Businesses add VAT onto their fees and prices as an additional cost and then collect this taxation on behalf of the government.
The simple principle behind VAT is consumers pay a tax on the products they buy based on the value of the product.
Businesses with a turnover of more than £85,000 must register to pay and charge VAT on the products and services they buy and sell.
Other businesses can choose to register for VAT voluntarily.
What was promised about VAT?
When the UK was a member of the EU, VAT on domestic energy had to be at least 5%.
During the 2016 EU referendum campaign, Boris Johnson and Michael Gove gave strong indications that VAT would be cut on domestic fuel if the UK left the EU.
Daniel Hannan, a Conservative member of the European Parliament at the time, and a prominent leave campaigner, also promised that outside of the EU "our fuel bills will be cheaper".
But VAT on fuel bills has not been scrapped since Brexit.
What is my VAT number?
A VAT Number, also known as VAT Registration Number, is a unique code that is issued to a company that is VAT registered.
This number is 9 digits long and will usually feature GB at the start.
HMRC will issue a company a VAT registration certificate on which the company can find their VAT number.
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