An Easy Guide to Understanding VAT: Understanding Taxes in London

by Heather Robinette / Jul 09, 2018 /
Heather Robinette's picture

In one of my past blogs called A Quick Guide on Spending Money in London, I discussed the coins, notes, exchange rate, debit/credit cards, and ATMs in London. Now, I want to look at the Value Added Tax (VAT), and what that means for you. Understanding the VAT tax will be very helpful in purchases you make while you are abroad.

Ensuring you are prepared and knowledgeable will help you save money in the long run. Personally, I wish this was something I had known about before I studied abroad. It would have been useful when I went shopping at Nike Town!

An Easy Guide to Understanding VAT: Understanding Taxes in London
 
You’re Familiar with Sales Tax

Many countries have sales tax added to purchases, which is a percentage of the final sale price. This is based on a sales tax jurisdiction, and can vary based on jurisdiction. I believe most see this around 8-10%. The larger the purchase, the more noticeable it is for the consumer. 

What is a VAT Tax?

Most European countries have a VAT, which means each company or person along the way pays a tax on the price at that point in time. While it does make accounting more complex, it helps cut down on tax fraud. Unlike sales tax, VAT is usually already included in the price, since it is a federal sales tax, which makes it consistent across the board.

For example, when you see something for 20 pounds, you’ll pay 20 pounds. Therefore, anywhere you shop in London (or any location that utilizes VAT), you’ll pay a 20% Value Added Tax as of the time of this post. This can vary in other countries, but you’ll typically see 15-25% range, sometimes lower. 

Here’s the Secret

It takes a little planning and organization, but you can get some of your money back on merchandise items, like clothes. It isn’t too over the top, and I believe it is worth it, especially if you plan to be abroad awhile, because it can drastically cut down on your purchase cost.

Just keep in mind, it doesn’t work for things like foods or hotels, so if you are counting on saving money via VAT, make sure you understand whether the items you want to buy are included or not. 

Steps to Save Money on the VAT:

1. Take your passport to shop, just make sure to keep it in a safe, secure location on yourself. 

2. When you get to a store, ask the retailer if they participate in the VAT refund. 

3. If yes, ask the salesperson for the document you need for the VAT refund, VAT 407. He or she will need to fill it out, as well. If you’re lucky, some stores handle the documents and reimbursements right on the spot. 

4. Keep all your receipts and forms together from your purchases. You’ll need to show this at customs, and they will need to stamp your documents. 

5. You can get your money back either at the airport at specific refund offices, or you can mail the forms in once you return home. This can also depend on the retailer, so make sure you understand the requirements for each one. 

Tip: As mentioned, not all shops participate, and different shops will have different minimum purchase conditions, i.e., one shop may require a £30 minimum purchase, while another may require £50. So, if you plan to do some shopping, trying to find a store that has several items you’re looking for is your best bet. The key for a VAT refund is the amount per receipt. 

Whether you plan to shop a lot or just for what you need, it might be worth considering a system for organizing your paperwork. Even if you study abroad for 6 weeks, but plan to purchase items abroad, that is a lot of money you can end up being refunded.

Keep this in mind as you start to plan your trip!

 

 

Heather Robinette is the London Study Abroad Editor for Wandering Educators. She notes, "During the summer of 2011, I studied abroad for six weeks in London at the University of Westminster with Academics Programs International. I graduated from Kansas State University in Manhattan, KS in December 2012 with a Bachelor of Science in Business Administration. I currently work as a marketing analyst for a small company in central Texas. I currently work as a marketing coordinator for a real estate firm in Las Vegas, NV. I am also pursuing my MBA. While I was abroad in London, I was able to create many unforgettable memories that I will never forget! My study abroad experience helped me gain various skills, but above all else, it helped me to learn more about myself and the world around me." You can find her online at http://www.heatherrobinette.com/

Click here to read more of Heather's articles about studying abroad in London.

 

 

 

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