Yes, VAT is generally charged on professional fees (such as legal, accounting, and consultancy services) if the provider is VAT-registered, usually at the standard rate (20% in the UK). These fees are considered taxable services, and VAT is also applicable to any incidental expenses recharged to the client, such as travel or accommodation.
Subscriptions that can be treated as VAT exempt include those charged by professional bodies, learned societies, trade unions, political parties and philanthropic organisations. HMRC interpret these categories narrowly.
While most professional services attract the standard 20% VAT rate, some may fall under special rules. For example, training services, medical consultancy, or financial services may be exempt.
Professional services: legal fees, accounting and bookkeeping services, and consultancy fees are considered VAT deductible in the category of professional services. Travel and accommodation: business travel expenses and accommodation costs for business trips are eligible for VAT deductions.
Standard Rate (20%) Most services are subject to standard rate VAT, including professional services such as legal, accounting and consultancy work, maintenance and repair services, cleaning and security services, marketing and digital services, commercial training and education, and IT support.
When not to charge VAT
VAT was initially created to unify the different indirect tax systems in place across different countries. It applies to almost all sales of goods and services that are bought and sold for use or consumption.
You cannot reclaim VAT for:
In most cases, labour is charged at the standard VAT rate of 20%. However, some types of work can qualify for reduced or zero-rated VAT depending on the project.
Education and training services
That means a school or training provider does not charge VAT on qualifying educational fees. (Note that not all training is exempt – always check HMRC's guidance.) However, as of the 1st January 2025, all private schools are subject to VAT on their fee payments in the UK.
You can claim VAT back on: Goods and services purchased only for business usage. Office expenses, equipment, and professional fees. Travel and sustenance (without regular commute)
Most goods and services are charged at the standard rate of 20%. You should charge this rate unless the goods or services are classed as reduced or zero-rated.
You can claim tax relief on: professional membership fees, if you must pay the fees to be able to do your job. annual subscriptions you pay to approved professional bodies or learned societies if being a member of that body or society is relevant to your job.
VAT is not charged on sports activities delivered on a non-profit basis, so if a gym doesn't make a profit, its members don't pay VAT on membership fees. However, profit-making gyms, like Pure Gym with its million members, are forced to charge VAT.
Some supplies of goods or services are exempt from VAT, meaning you do not charge VAT on them and they do not count towards the VAT registration threshold. Common exempt services include: Insurance, finance, and credit services. Education and training (in many cases)
Expenses must be 'recharged' plus VAT at the rate at which your business charges it, i.e. 20%. In other words, if you recharge costs to your client you must charge VAT because the expense was for you, not for the client.
VAT-Exempt Sales: Your sale is VAT-exempt if it falls under Section 109 of the Tax Code, such as sales of certain residential properties, agricultural food products, educational and medical services. You do not charge VAT and cannot claim input VAT credits.
TDS is deducted under section 194J if the payment exceeds Rs. 30,000 (Rs. 50,000 starting FY 2025-26) during a financial year. The TDS rate is 10% in general, but can be different based on the type of service, with the requirement to deduct 2% TDS for technical services.
Five Most Overlooked Tax Deductions
Healthcare: Medical services, hospital care, and the supply of certain medical products may also be exempt from VAT. Financial services: Many financial services, like insurance and banking, are VAT-exempt. Charitable activities: Donations and activities carried out by registered charities may be exempt from VAT.
If your taxable turnover exceeds the VAT registration threshold - currently set at £90,000 in a rolling 12-month period - then yes, you are required to register for VAT. Once registered, you must charge VAT on your taxable supplies (also known as output VAT) and submit VAT returns to HMRC, usually every quarter.
VAT is therefore, charged at each stage of the production and distribution process and it is proportional to the price charged for the goods and services. VAT is also payable on the importation of goods and on imported services.