Current UK VAT Rates — Thresholds and Exemptions

UK VAT at a glance

The current VAT in the UK has three main rates. The standard rate is 20%. The reduced rate is 5%. Many basic foods and children's clothes have a 0% rate.

VAT is a tax on spending. Businesses collect it from customers, then pay HM Revenue & Customs (HMRC). The current VAT threshold is £90,000 in taxable sales over any rolling 12-month period.

That threshold applies to most UK businesses. It does not mean you owe £90,000 in VAT. It decides when registration becomes required.

• 20% standard rate: Most taxable goods and services use this rate.
• 5% reduced rate: This covers selected goods and services.
• 0% zero rate: VAT applies at 0%, but sellers retain key VAT rights.
• Exempt: No VAT is charged, and input VAT recovery usually does not apply.

What VAT means and where it came from

Value-added tax is an indirect tax on final consumption. It reaches the customer through each sale in a supply chain.

France introduced the first modern VAT in 1954. Many countries later adopted it because collection spreads across several sales.

The UK introduced VAT in 1973. It replaced purchase tax, which applied at different rates to selected products.

UK VAT changed during later decades. The country now uses a broad standard rate, a reduced rate, and a zero rate.

More than 170 countries now use VAT or a similar goods and services tax. Rules differ by country, but the core model stays similar.

Current VAT rates in the UK

The current VAT tax rates depend on the item, its use, and the buyer. A business must classify each sale before adding VAT.

The standard rate is 20%. It covers most electronics, professional services, clothing for adults, and restaurant meals.

The reduced rate is 5%. It can apply to domestic fuel, home energy, children's car seats, and some mobility aids.

Reduced rates have strict limits. For example, home energy rules can change with the property and the customer's use.

Rate	Common examples	VAT charged
Standard	Most goods and services	20%
Reduced	Home energy and children's car seats	5%
Zero	Most basic food and children's clothes	0%
Exempt	Financial services and postage stamps	Not charged

Check the UK government VAT rates list before pricing an unusual item. HMRC updates guidance when rules change.

Reduced, zero-rated, and exempt supplies

Zero-rated and exempt supplies look alike to customers. They work very differently for the seller.

A zero-rated sale has a VAT rate of 0%. The business still makes a taxable supply. It can often reclaim VAT paid on related costs.

Most basic food is zero-rated. Children's clothing, books, newspapers, and some passenger transport can also qualify.

Exempt supplies sit outside the VAT charge. Financial services, insurance, education, health care, and postage stamps often fall here.

A business making only exempt sales cannot usually reclaim VAT on its costs. Mixed businesses must split their costs and apply the right method.

• Zero-rated sales appear on VAT records and returns.
• Exempt sales do not carry VAT for the customer.
• Input VAT recovery is usually stronger for zero-rated sales.
• One product can have different treatment after a small change.

Food sold in a café may be standard-rated, while basic food sold for home use may be zero-rated. Packaging, heating, and delivery can affect the result.

Current VAT thresholds and registration rules

The current VAT threshold is £90,000 of taxable turnover in a rolling 12-month period. This rule uses taxable sales, not profit.

You must register when your taxable turnover goes above £90,000. You must also register if you expect to pass it within the next 30 days.

Businesses can register voluntarily below the threshold. This may help them reclaim input VAT on costs. It also adds record and filing work.

The deregistration threshold is £88,000 for most businesses. A business can ask to cancel registration when taxable turnover stays below that level.

Some overseas sellers face different rules. Importers and sellers using online marketplaces may need separate checks.

• Track taxable turnover each month.
• Use a rolling 12-month total, not only the tax year.
• Separate exempt sales from taxable sales.
• Keep evidence for unusual rate choices.
• Register on time when the threshold is crossed.

The HMRC VAT registration guidance explains dates, exceptions, and online registration steps.

How VAT works through a supply chain

VAT follows the value added at each stage. Each business charges VAT on sales and claims VAT on eligible purchases.

Imagine a maker sells goods to a shop for £100. At 20%, the maker charges £120. The shop later sells those goods for £180 plus £36 VAT.

The maker pays £20 to HMRC, after claiming any VAT on its own costs. The shop reports £36 output VAT and subtracts the £20 paid to the maker.

The shop then pays £16, before other input claims. Across the chain, the final customer bears the full £36 VAT on the £180 price.

This method spreads collection across the chain. It also creates paper trails at each sale.

1. Seller records the sale value and VAT rate.
2. Buyer records the purchase VAT as input VAT.
3. Seller reports output VAT on its VAT return.
4. Buyer claims eligible input VAT against output VAT.
5. Business pays the balance or claims a repayment.

VAT compared with sales tax

VAT and sales tax both tax consumption. Their collection methods differ.

VAT is collected in stages. Each business charges VAT, keeps records, and claims eligible input VAT.

Sales tax is often charged only at the final retail sale. The retailer then sends the collected tax to the state.

VAT creates more filing work for businesses. Sales tax can seem simpler for firms outside retail. Cross-border sales can make either system complex.

VAT also reduces the risk of losing all tax when one seller fails. Several businesses have already collected parts of the final amount.

Feature	VAT	Sales tax
Collection point	Each supply-chain stage	Usually the final sale
Business claim	Input VAT can reduce the bill	Usually no matching claim
Main record need	Sales and purchase VAT records	Retail sales tax records
Customer view	VAT is often included in prices	Tax is often added at checkout

What VAT means for consumers

Consumers usually pay VAT through the final price. VAT-registered sellers include it in most advertised prices.

A £120 item with a 20% VAT rate has a pre-tax price of £100. The VAT part is £20.

Prices can change when a product moves between rate groups. A takeaway meal may face a different rate from cold food sold in a shop.

Consumers cannot normally reclaim VAT on everyday purchases. Registered businesses can claim eligible input VAT instead.

VAT affects low-income households more strongly because they spend more of their income. Zero rates and reduced rates lower the charge on selected essentials.

Always check whether a quoted price includes VAT. Business-to-business quotes may show the net price, VAT, and total separately.

Key points for businesses

Good VAT compliance starts with sound records. Keep invoices, rate decisions, and proof for unusual transactions.

Use accounting software that tracks VAT by rate. Review totals before each return and fix errors quickly.

Do not treat every zero-rated item as exempt. That mistake can block valid input claims or create the wrong return figures.

For complex supplies, ask an accountant or check HMRC guidance. A small rate error can affect many customer invoices.

• Know whether your sales are taxable, zero-rated, or exempt.
• Watch the £90,000 rolling turnover threshold.
• Show the right VAT rate on each invoice.
• Keep purchase invoices for input VAT claims.
• File returns and pay on time.