Complete guide to current UK VAT rates including the standard 20% rate, reduced 5% rate, zero-rated goods, and exempt supplies. Learn what applies to your business.
| Rate | Percentage | Examples |
|---|---|---|
| Standard Rate | 20% | Most goods and services, restaurants, accommodation, entertainment |
| Reduced Rate | 5% | Domestic fuel, energy bills, children's car seats, water |
| Zero Rate | 0% | Most food, books, newspapers, children's clothing, exports |
The standard VAT rate of 20% applies to the vast majority of goods and services in the United Kingdom. If an item or service doesn't fall into the reduced or zero-rated categories, it will be subject to the 20% standard rate.
Example: A plumber charges £240 for a service. This includes 20% VAT. The net charge is £200, with £40 being VAT.
The reduced VAT rate of 5% applies to a specific list of goods and services, primarily necessities and items considered essential. This rate was temporarily expanded during the pandemic but has now reverted to its standard scope.
Example: An electricity bill shows £60 including 5% VAT. The net charge is £57.14, with £2.86 being VAT.
Zero-rated items are taxed at 0%, meaning no VAT is charged to the customer. However, suppliers of zero-rated goods can still claim back VAT paid on their inputs, making these supplies "VAT-free" rather than "VAT-exempt".
Example: A loaf of bread costs £2.00 and is zero-rated. The customer pays exactly £2.00 with no VAT added. The baker can reclaim VAT paid on flour and other ingredients.
Value Added Tax (VAT) is a consumption tax applied at each stage of the supply chain. It's collected on behalf of HMRC (Her Majesty's Revenue and Customs) by businesses registered for VAT. The beauty of VAT is that tax is only paid on the "value added" at each stage, not on the full price repeatedly.
Most UK businesses must register for VAT if their annual turnover exceeds the registration threshold. Once registered, they must:
VAT is ultimately borne by the final consumer. The business collecting VAT acts as an agent for HMRC, collecting tax throughout the supply chain.
The VAT registration threshold is the turnover limit above which you must register for VAT. As of April 2024, this threshold is:
£90,000
Annual turnover threshold for mandatory VAT registration
If your annual turnover exceeds this amount, you are legally required to register for VAT. However, you can also choose to register voluntarily if your turnover is below the threshold, which may be beneficial if you make primarily zero-rated supplies.
Important Note:
The threshold is based on your annual turnover, not profit. It includes all your business income, even if some is zero-rated. You must register once you know your turnover will exceed the threshold during any 12-month period.
It's crucial to understand the difference between exempt and zero-rated supplies, as they have very different VAT implications for your business.
Exempt supplies are typically less VAT-efficient than zero-rated supplies. If your business has exempt income, you cannot recover VAT paid on inputs related to those supplies, making VAT a real cost to your business.
The UK's VAT system has been in place since 1973, but rates have changed over time in response to economic conditions and policy decisions:
2024 (April)
VAT registration threshold increased from £85,000 to £90,000
2022 (March)
5% reduced rate on energy temporarily extended during cost-of-living crisis
2021 (June)
Hospitality VAT rate reduced from 20% to 5% during pandemic recovery (temporary measure)
2020
COVID-19 relief: VAT suspension on food delivery services and reduced hospitality VAT
The current rate structure (20% standard, 5% reduced, 0% zero-rated) has remained consistent for several years, providing stability for businesses in their VAT planning.
Understanding how to calculate VAT is essential for business accounting and financial planning. There are two main scenarios:
If you know the net price and want to add VAT:
Example: £100 net + 20% VAT = £100 × 1.20 = £120 gross
If you know the total (gross) and need to extract the net:
Example: £120 gross ÷ 1.20 = £100 net (with £20 VAT)
Need to do these calculations quickly for multiple invoices? Use our:
Free VAT CalculatorCommon questions about UK VAT rates
The current UK standard VAT rate is 20%. This applies to most goods and services in the United Kingdom and has been the standard rate since 2011.
Zero-rated items include most food products (bread, vegetables, meat), books and newspapers, children's clothing, medical equipment, and exports outside the UK. The seller charges 0% but can still reclaim VAT on inputs.
The reduced VAT rate is 5%. It applies to domestic fuel (gas and electricity), water and sewerage, children's car seats, and certain medical aids for disabled persons.
As of April 2024, the VAT registration threshold in the UK is £90,000. If your annual turnover exceeds this amount, you must register for VAT with HMRC, regardless of profit level.
Zero-rated: You charge 0% VAT but can reclaim VAT on inputs. Exempt: You don't charge VAT and cannot reclaim VAT on inputs. Exempt supplies are less VAT-efficient for businesses, as VAT becomes a cost rather than being passed through.