Key takeaways
- VAT (value added tax) is a tax on most goods and services sold in the UK, which VAT-registered businesses collect for HMRC.
- The UK has three VAT rates: 20% standard, 5% reduced and 0% zero, and Budget 2026 keeps all three for 2027/28.
- You must register for VAT if your taxable turnover goes over £90,000 in any rolling 12 months, or you expect it to in the next 30 days alone.
- A registered business pays HMRC the VAT it charged minus the VAT it paid on business purchases; if it paid more, HMRC usually refunds the difference.
- Exempt supplies, such as insurance, most financial services and education from eligible bodies, carry no VAT and do not count towards the threshold.
- Most businesses file a VAT return every three months, due one calendar month and 7 days after the period ends.
- All VAT-registered businesses must follow Making Tax Digital for VAT rules and file through compatible software.
VAT, or value added tax, is a tax on most goods and services sold in the UK. VAT-registered businesses add it to their prices, collect it from customers and pass it to HMRC, after deducting the VAT they paid on their own business purchases. The standard rate is 20%, and you must register once your taxable turnover passes £90,000 in a rolling 12 months.
How does VAT work?
VAT works as a chain: each business in a supply chain charges VAT on its sales and reclaims VAT on its purchases. GOV.UK calls the difference your net VAT. You pay it to HMRC, or HMRC refunds you if you paid more than you charged.
The final consumer, who cannot reclaim anything, bears the full cost. Businesses act as collectors.
A worked example
Here is how VAT moves through a simple sale at the 20% standard rate.
| Step | Net price | VAT at 20% |
|---|---|---|
| Wholesaler sells a table to a shop | £100 | £20 |
| Shop sells the table to a customer | £150 | £30 |
| Shop pays HMRC (£30 less £20) | £10 |
The wholesaler pays HMRC its £20 and the shop pays £10. HMRC receives £30 in total, which is 20% of the final £150 price. To work out VAT on your own figures, use our VAT calculator or see how to calculate VAT.
What are the UK VAT rates?
The UK has three rates, set out on GOV.UK’s VAT rates page. Budget 2026 Annex A, updated 5 November 2026, keeps them unchanged for 2027/28.
| Rate | Percentage | Examples |
|---|---|---|
| Standard | 20% | Most goods and services, confectionery, soft drinks, hot takeaway food |
| Reduced | 5% | Home energy, children’s car seats, mobility aids for older people |
| Zero | 0% | Most food, books and newspapers, children’s clothes |
The standard rate has been 20% since 4 January 2011, when it rose from 17.5%. HMRC’s rates on different goods and services list, updated 10 July 2026, gives the full detail. Our VAT rates and exemptions guide covers the edge cases.
What is the difference between zero-rated and exempt?
Zero-rated and exempt supplies both carry no VAT, but they are treated differently. Zero-rated sales are taxable at 0%, so they count towards the £90,000 threshold and you can reclaim VAT on related costs.
Exempt sales are outside the VAT system. HMRC’s exempt list includes:
- insurance
- loans, bank accounts and other financial services
- health services from registered health professionals
- education and training from eligible bodies
- betting, gaming and lottery tickets
- burial and cremation services
Exempt sales do not count towards the threshold, and you generally cannot reclaim VAT on costs linked to them.
When do you have to register for VAT?
You must register when your VAT taxable turnover passes £90,000. GOV.UK sets two tests:
- Looking back. If your taxable turnover for the last 12 months goes over £90,000, register within 30 days of the end of that month.
- Looking ahead. If you expect taxable turnover in the next 30 days alone to go over £90,000, register by the end of those 30 days.
The deregistration threshold is £88,000. Both figures are unchanged from April 2027 under Budget 2026. See the VAT registration threshold for worked dates.
Can you register voluntarily?
Yes. You can register below £90,000 if you make taxable supplies. It can help if your customers are VAT-registered and can reclaim what you charge, or if you have large costs with VAT on them. It can hurt if you sell mainly to consumers, because your prices rise by up to 20%. See voluntary VAT registration.
What changes once you are registered?
Registration brings a set of ongoing duties. Once HMRC registers you, you must:
- charge VAT at the correct rate on taxable sales
- issue VAT invoices that show your VAT number
- keep digital records under Making Tax Digital for VAT
- file a VAT return, usually every three months
- pay HMRC by the deadline
GOV.UK says returns and payment are usually due one calendar month and 7 days after the end of each period, even if that falls on a weekend. Schemes such as the flat rate scheme change how you work out what you owe.
Which applies to you?
- If your rolling 12-month taxable turnover is under £90,000, you do not have to register.
- If it has gone over £90,000, register within 30 days of that month end.
- If you sell only exempt services, you cannot register on those sales and they do not count.
- If your customers are mostly VAT-registered businesses, voluntary registration may be worth considering.
Frequently asked questions
What does VAT stand for?
VAT stands for value added tax. It is charged on most goods and services sold by VAT-registered businesses in the UK.
What is the current VAT rate in the UK?
The standard rate is 20%. There is also a reduced rate of 5% and a zero rate of 0%, all unchanged for 2027/28.
Who pays VAT?
The final consumer bears the cost. VAT-registered businesses collect it on sales and pay HMRC the difference between the VAT they charge and the VAT they pay.
Do I have to charge VAT if I am not registered?
No. You can only charge VAT if you are registered. Until your taxable turnover passes £90,000, registration is optional.
How often do I pay VAT?
Most businesses file a VAT return and pay every three months, due one calendar month and 7 days after the period ends.
Is zero-rated the same as exempt?
No. Zero-rated sales are taxable at 0% and count towards the threshold; exempt sales are outside VAT and do not.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance on 6 November 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.