VAT rates decide how much Value Added Tax is added to goods and services sold in the UK. There are three main rates:
Standard Rate (20%) – The standard VAT rate applies to most goods and services. If you’re VAT registered, you must charge this rate unless an exception applies.
Reduced Rate (5%) – Some goods and services qualify for the reduced rate, such as children’s car seats, home energy, or certain energy-saving materials.
Zero Rate (0%) – Some items are zero-rated, meaning they’re taxable but the rate is 0%. This includes most food, children’s clothes, books, and newspapers.
Understanding which VAT rate applies to your sales is key to charging the right amount, reclaiming input VAT correctly, and submitting accurate VAT returns.
Before you charge or reclaim VAT, it’s important to know which rate applies to your products or services. Most businesses use the standard rate of 20%, but some items qualify for the reduced rate or zero rate — and mistakes can lead to underpaying or overpaying HMRC.
Register for VAT:
You must register for VAT if your taxable turnover goes over the VAT registration threshold. Once registered, you’ll charge VAT at the correct rate and submit regular VAT returns.
Keep Good Records:
Accurate invoicing and record-keeping are essential for showing which VAT rates you’ve used and proving your input tax claims.
Stay Up to Date:
VAT rates can change, and certain items might qualify for temporary reduced rates or exemptions. Check HMRC guidance or get advice if you’re unsure.
Knowing how VAT rates work helps you stay compliant, reclaim VAT correctly, and avoid costly errors.
Registered businesses charge Value Added Tax (VAT) on their sales. This is known as output VAT and the sales are referred to as outputs.
Similarly VAT is charged on most goods and services purchased by the business. This is known as input VAT.
There are three rates: standard which applies to most goods and services, reduced rate for some goods and services such as home energy and zero rate goods and services, for example, most food and children's clothes.
Some supplies are exempt from VAT for example postage stamps, financial and insurance transactions.
A business is required to register for VAT if the value of taxable supplies exceeds the annual registration limit.
Standard: 20%
Reduced: 5%
Annual Registration Limit (1.4.25 to 31.3.26): £90,000
Annual Deregistration Limit (1.4.25 to 31.3.26): £88,000
Complete VAT Returns for UK Businesses
Capital Allowances
Capital Gains Tax Rates
Corporation Tax Rates
Child Benefit Allowances
Income Tax Rates
Individual Savings Accounts (ISA)
Inheritance Tax Rates
Minimum Wage Rates
National Insurance Rates
Pension Contributions
Property and Trade Allowances
Stamp Duty & Land Tax Rates
Statutory Pay Rates
Tax Reliefs for Individuals
Vehicle Rates & Allowances
Value Added Tax Rates
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VAT is ultimately paid by the end consumer, but businesses registered for VAT act as collectors on behalf of HMRC.
Businesses:
VAT-registered businesses must charge VAT on their taxable sales, pay VAT to HMRC, and can usually reclaim the VAT they pay on business expenses (input tax).
Consumers:
The customer pays VAT as part of the price when they buy goods or services that are VAT-rated. The business passes this VAT on to HMRC through their VAT returns.
Non-Registered Businesses:
If your business is not VAT registered, you can’t charge VAT on sales but you also can’t reclaim VAT on purchases.
Importers:
When you import goods into the UK, VAT is usually due at the point of import. Businesses can normally reclaim this if the goods are for business use and they’re VAT registered.
Understanding who pays VAT and how to manage it helps businesses stay compliant and keeps your cash flow under control.
If you’re VAT registered, you must charge VAT correctly and reclaim it where allowed to manage your cash flow and stay compliant with HMRC.
How to Charge VAT:
How to Reclaim VAT:
Submit VAT Returns:
Charging and reclaiming VAT correctly helps you avoid penalties and makes sure you only pay what you owe no more, no less.
What is the standard VAT rate in the UK?
The standard VAT rate is 20% and applies to most goods and services sold in the UK.
What is the reduced VAT rate?
The reduced VAT rate is 5% and applies to some items like domestic fuel and power, children’s car seats, and some energy-saving materials.
What is zero-rated VAT?
Zero-rated goods and services are taxable but charged at 0% including most food, children’s clothes, books, and newspapers.
Who has to register for VAT?
Businesses must register for VAT if their taxable turnover exceeds the VAT registration threshold. You can also register voluntarily if it suits your business.
Can I reclaim VAT on all business expenses?
You can usually reclaim VAT on goods and services used solely for business purposes — but you can’t reclaim VAT on exempt items or personal costs.
Do I charge VAT to overseas customers?
This depends on whether your customer is in the UK, EU, or rest of the world — and whether they’re a business or consumer. Rules can be complex, so check HMRC guidance.
What happens if I use the wrong VAT rate?
Charging the wrong VAT rate can lead to underpayments or overpayments, which can cause penalties or cash flow issues. Always check which rate applies.
How do I correct a VAT mistake?
If you make a mistake on a VAT return, you can usually adjust it in your next return if it’s under the error correction limit or submit a separate correction to HMRC.
Can I claim capital allowances on rented property?
If you own commercial property, you can claim on qualifying fixtures and integral features inside the building. Residential landlords have more limited options.
What happens if I sell an asset I claimed for?
When you sell or dispose of an asset, you may need to make a balancing adjustment – adding or subtracting an amount from your tax calculation to reflect the sale value.
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