VAT FAQ: common questions, answered properly

No. Public transport fares, including trains, buses and flights, are zero-rated. You won't see VAT added to the price of a ticket.

No, but not for the reason people expect. Insurance is VAT-exempt rather than zero-rated, which sounds similar but isn't. Instead, most insurance policies carry Insurance Premium Tax (IPT), a separate tax that isn't VAT and can't be reclaimed the way VAT can.

Royal Mail's basic postal service is exempt from VAT, since it operates as the UK's universal postal provider. Other couriers don't get this exemption. If a retailer charges you for delivery, that charge usually follows the VAT rate of the goods you bought, so delivery on a zero-rated book is zero-rated too, and delivery on a standard-rated item is standard-rated.

It depends on temperature. Cold takeaway food, like a sandwich or a bottle of water, is zero-rated. Hot takeaway food is standard-rated at 20%. The test is whether the food is above room temperature when it reaches you, not how it's labelled or packaged. This is the rule behind the famous "pasty tax" debate from 2012.

It depends on the card. If it can only ever be spent on one VAT rate, like a gift card for a shop that sells nothing but standard-rated goods, VAT is charged when the card is sold. If the card could be spent on a mix of VAT rates, like a card usable across a shopping centre with different kinds of shops, VAT is only charged when the card is actually spent, not when it's bought.

Yes, the same rules apply no matter how your business is set up. Once your taxable turnover passes £90,000 in a rolling 12-month period, you have to register, whether you trade as a sole trader, a partnership or a limited company. See our full guide to the VAT registration threshold for how that works.

Yes. There's no requirement to set up a limited company first. Plenty of sole traders register for VAT, either because they've crossed the threshold or because they've chosen to register early.

Yes, charities generally pay VAT on what they buy, just like any other organisation. They do get some reliefs though: certain purchases, like advertising and equipment for disabled people, are zero-rated, and fuel or power used for non-business charitable activities gets the reduced 5% rate. Fundraising events and some welfare or educational services are usually VAT-exempt.

It's a way of charging VAT on second-hand goods, like used cars or antiques, that only taxes the profit you make on the sale rather than the full price. Under the standard margin scheme, VAT is due at one-sixth of the difference between what you paid for an item and what you sold it for. So if you bought something for £1,500 and sold it for £2,000, VAT is due on the £500 margin, not the full £2,000.

Usually, yes, but often only on the profit margin rather than the full price, through the VAT margin scheme described above. This is common for used cars, antiques and other second-hand items sold by a VAT-registered dealer.