What Is VAT?

VAT (Value Added Tax) is a tax added to the price of most goods and services sold in the UK. Businesses that are registered for VAT charge it on their sales, show it separately on invoices, and pay it over to HMRC. The customer pays the VAT as part of the price.

What % is VAT in the UK? There are three rates: the standard rate is 20%, which applies to most goods and services; the reduced rate is 5%, which applies to some items such as home energy and children's car seats; and the zero rate is 0%, which applies to items such as most food, books and children's clothes. See the full list on our current VAT rate page, or work out the VAT on any price with our free VAT calculator.

How VAT works

A VAT-registered business adds VAT to its sales, collects it from customers, and pays it to HM Revenue & Customs (HMRC). On its VAT return, the business takes away the VAT it paid on its own purchases from the VAT it charged, and pays HMRC the difference.

Some goods and services are exempt, which means no VAT is charged on them. Examples include insurance, finance, health services, postal services, rent, private education and gambling.

When must a business register for VAT?

Businesses must register for VAT if their taxable turnover goes over £90,000 in any rolling 12-month period — or if they expect it to go over £90,000 in the next 30 days alone. This threshold has applied since 1 April 2024. Businesses can also register voluntarily before reaching the threshold. The deregistration threshold is £88,000. See our guide to the VAT registration threshold for how to work out your rolling 12-month total.

UK VAT rates with examples

Standard rate (20%): applies to most goods and services. Example: a £50 item plus 20% VAT is £60 in total (multiply by 1.2).

Reduced rate (5%): applies to a few items, such as domestic fuel and power and mobility aids. Example: a £50 item at 5% is £52.50 in total (multiply by 1.05).

Zero rate (0%): applies to items such as most food, children's clothes and books, so the price stays the same — a £50 item stays £50.

Knowing how to calculate VAT keeps a business accurate and compliant with HMRC rules. To work out any price quickly, use the free VAT calculator on our homepage.

By VAT Calculatorz · Last updated October 2026 · Source: GOV.UK — Register for VAT and VAT thresholds.