Basically, you pay VAT as a sales tax each time you purchase a good or service. What usually takes Americans a while to get used to is the fact that VAT is already included in the price of the items you buy, so what you see on that sticker price is what you’ll pay at the register—makes it very handy for mentally calculating totals as you try to shop within your budget. As of 2010, the going VAT rate is 17.5%.
As I’ve mentioned before in my “Weekend Warrior Saturday” series on packing tips, if you’re relocating to London from outside the European Union (EU) and toting with you a high value of recently-purchased goods, UK Customs may impose a customs duty, requiring that you pay taxes on those goods even if they were purchased outside of the UK! The logic, I believe, is that you may be transporting these goods into the UK for commercial retail use. My husband and I, for example, had to provide evidence of our wedding registries to be exempt from paying full VAT on our wedding and shower gifts received that same year—even though US tax had been paid on them—to show that these were gifts purchased by other people for our own use. If you’re concerned about this (hopefully not—I don’t think it’s an issue that affects the typical expat), when you’re making arrangements with your international mover, ask about this as far as what the threshold is for newer items and what tax rate would apply.
If you are self-employed, you will have to pay VAT on the goods you buy and, if VAT-registered, the goods you sell. Your business must register for VAT if the value of your VAT-taxable goods/services sold exceed £70,000 for the previous year. Below that, registration is voluntary. Being VAT-registered, however, means charging an extra 17.5% for your goods/services; otherwise, you’d be decreasing your profit by that amount keeping your prices the same while still having to pay the government (though it’s arguable profits could still be reduced if the higher price turns customers away!).
One last thought on this topic that impacts you if you’re just visiting the UK, or if you’re hosting guests that may hit you up with this question (as I am all the time! Add this to my “Playing Host With the Most When You Move to London” suggestions…): VAT refunds for visitors to the UK. In general, non-UK citizens who are only visiting the UK may get back the VAT paid while on holiday—it just takes a little bit of research and diligence in saving your receipts and procuring a VAT refund document to show at the airport upon departure. Other conditions naturally apply, so I’ll speak on this in more detail in a future blog post.
In the meantime, I think we all need a break from this UK tax jazz, agreed? This weekend we’ll be back to the fun stuff like packing tips and London history, and next week will offer a smorgasbord on fun things to do once you move to London!