VAT in the United Kingdom
The standard VAT rate in the United Kingdom is 20%. Reduced rates of 5%, 0% apply to certain goods and services such as food, books and medicine. To add VAT, multiply the net price by 1.2 — on a £100 item that adds £20, for £120 total.
In the United Kingdom, consumption tax is called VAT (Value Added Tax) and is administered by HMRC. What sets the British system apart is its extensive use of a 0% "zero rate" that covers most food, children's clothing and printed books, alongside a 5% reduced rate on items such as domestic energy and children's car seats. Since Brexit, the UK sits outside the EU VAT area and now sets its own rules independently.
Reduced rates
5%, 0%
Many foods and children's clothes are zero-rated (0%).
Zero-rated and exempt are not the same thing
Both mean no VAT on the invoice, and the difference decides whether a business can reclaim what it paid. A zero-rated sale is taxable at 0%: it counts as a taxable supply, so the seller recovers the VAT on everything bought to make it. An exempt sale is outside the tax: the seller charges nothing and reclaims nothing, and the VAT paid on inputs stays a cost.
This is why the UK's list of zero-rated goods matters so much to the businesses on it. Most food, children's clothing, books and newspapers are zero-rated rather than exempt, which keeps their supply chains whole. Financial services, insurance, most healthcare and postage are exempt — and a business that mixes exempt and taxable supplies has to apportion its input VAT, which is where the accounting gets genuinely hard.
Registration, and the threshold that shapes small businesses
A business must register once taxable turnover passes the threshold on a rolling twelve-month basis — not a calendar year — and also if it expects to pass it within the next thirty days alone. The rolling test is the one that catches people: a good quarter can trigger registration in a year that ends below the line.
The threshold is high by European standards, and that produces a visible effect: a cluster of small businesses that deliberately stay under it, because crossing means adding VAT to prices charged largely to consumers who cannot reclaim it. It is one of the few places where a tax threshold measurably shapes how big firms choose to be, and it is worth planning around rather than discovering.
FAQ
- What does "zero-rated" mean and which items qualify in the United Kingdom?
- Zero-rated goods are still taxable, but VAT is charged at 0%, so no tax is added to the price and the seller can still reclaim VAT on related costs. In the UK this covers most food and non-alcoholic drinks, children's clothing and footwear, printed books and newspapers, and prescription medicines. It differs from "exempt" supplies, where no VAT applies and the business cannot reclaim input VAT.
- When must a business register for VAT in the United Kingdom?
- A business must register for VAT once its taxable turnover exceeds the registration threshold, which is £90,000 over any rolling 12-month period (in force since April 2024), or if it expects to pass that figure within the next 30 days. Below the threshold, registration is voluntary and can be worthwhile to reclaim input VAT. Once registered, the business charges VAT and files returns to HMRC, usually quarterly.
Please note
VAT rates change, often yearly. This figure for the United Kingdom is a general reference as of 2026 — confirm the current rate with the official source before relying on it.