| Rate | When it applies | Examples |
|---|---|---|
| 20% Standard | Most goods and services | Professional services, electronics, clothing (adults), software, most B2B sales |
| 5% Reduced | Specific goods/services listed by HMRC | Home energy (gas, electricity), children's car seats, smoking cessation products, some building work |
| 0% Zero | Specific goods listed by HMRC | Most food (not hot food or catering), children's clothing, books, newspapers, prescription drugs, new residential construction |
The UK VAT registration threshold is £90,000 of taxable turnover in any rolling 12-month period (as of April 2024). Businesses below this threshold can register voluntarily.
Under the VAT Flat Rate Scheme, you charge your customers at the standard 20% rate but pay HMRC a fixed percentage of your VAT-inclusive turnover. Find your sector rate below.
A 1% first-year discount applies to businesses in their first year of VAT registration. If your business spends less than 2% of VAT-inclusive turnover (or less than £1,000) on goods, HMRC classes you as a limited cost trader and the 16.5% rate applies instead.
Frequently asked questions
The standard rate is 20% and applies to most goods and services. The reduced rate of 5% applies to items such as domestic fuel and power, children's car seats, and some energy-saving materials. The zero rate (0%) applies to most food, children's clothing, books and newspapers, and public transport. Exempt supplies (such as financial services and education) do not carry VAT at all.
Both result in no VAT charged to the customer, but the distinction matters for the seller. If you make zero-rated supplies you can still reclaim the input VAT you pay on your business purchases. If you make exempt supplies you cannot reclaim input VAT on costs related to those supplies. Businesses making a mix of taxable and exempt supplies must apportion their input VAT claims.
VAT is calculated on the net (excluding VAT) price of goods or services plus any other charges that form part of the supply, such as delivery. Discounts reduce the VAT base if taken at the time of sale. Prompt payment discounts have specific rules and you may charge VAT on the full undiscounted amount even if a discount is later taken.
VAT-registered businesses must keep VAT account records (a summary of output and input VAT), sales records (copies of VAT invoices issued), and purchase records (VAT invoices and receipts received). Under Making Tax Digital, these must be kept in digital form using compatible software. Records must be kept for at least 6 years.
For goods exported outside the UK, the supply is generally zero-rated and no VAT is charged. For services, the place of supply rules determine which country's VAT applies. Broadly, B2B services are taxed where the customer belongs (reverse charge), while B2C services are taxed where the supplier belongs. EU VAT rules changed post-Brexit, so specific advice is recommended for businesses selling to EU customers.