The standard UK VAT rate in 2026/27 is 20%, charged on most goods and services. A reduced rate of 5% applies to domestic gas and electricity, some energy-saving materials and children’s car seats. A zero rate of 0% covers most food, books, newspapers and children’s clothing. Exempt supplies such as insurance and education sit outside VAT entirely. Use the VAT calculator to add or remove VAT at any rate.
The three VAT rates
| Rate | Percentage | Applies to |
|---|---|---|
| Standard | 20% | Most goods and services, including electronics, furniture, adult clothing, restaurant meals and professional services |
| Reduced | 5% | Domestic gas and electricity, some energy-saving materials installed in homes, children’s car seats, smoking cessation products |
| Zero | 0% | Most food (not meals out or hot takeaways), books, newspapers, children’s clothing and footwear, public transport, new residential construction |
Zero-rated goods are still taxable supplies for VAT purposes, which means a business selling only zero-rated items can reclaim the VAT it pays on its own purchases. Exempt supplies are different: they sit outside VAT altogether, and a business making only exempt supplies cannot register for VAT or reclaim input tax. The distinction matters because it determines whether the business recovers the VAT on its costs.
How to add and remove VAT
Adding VAT is straightforward: multiply the net (before VAT) price by 1.20 for the standard rate, 1.05 for the reduced rate, or 1.00 for zero-rated items.
Removing VAT from a gross (VAT-inclusive) price requires dividing, not subtracting. A gross price of £120 divided by 1.20 gives a net of £100 and VAT of £20. Subtracting 20% of £120 gives £96, which is wrong because the 20% was originally charged on the smaller net figure.
| Net price | VAT at 20% | Gross price |
|---|---|---|
| £50.00 | £10.00 | £60.00 |
| £100.00 | £20.00 | £120.00 |
| £500.00 | £100.00 | £600.00 |
| £1,000.00 | £200.00 | £1,200.00 |
| £10,000.00 | £2,000.00 | £12,000.00 |
The VAT calculator handles both directions and works at any rate.
When to register for VAT
A business must register for VAT once its taxable turnover in any rolling twelve-month period exceeds £90,000, or as soon as it expects to exceed that figure in the next 30 days alone. The test runs at the end of every month, looking back over the previous twelve. Registration can be cancelled when turnover falls below £88,000. Our VAT registration threshold guide covers the full detail.
Voluntary registration is allowed at any turnover and is worth considering when most customers are VAT-registered businesses (since they reclaim what is charged) or when a business has large input VAT to recover, for example on start-up costs.
The Flat Rate Scheme
Small businesses with taxable turnover of £150,000 or less (excluding VAT) can apply for the Flat Rate Scheme. Instead of tracking input and output VAT on every transaction, the business charges customers the standard 20% but pays HMRC a lower flat-rate percentage of its gross turnover. The percentage depends on the business sector.
| Sector | Flat rate percentage |
|---|---|
| Accountancy or book-keeping | 14.5% |
| Computer and IT consultancy | 14.5% |
| Computer repair services | 10.5% |
| Hairdressing | 13% |
| Labour-only building or construction | 14.5% |
| Management consultancy | 14% |
| Pubs | 6.5% |
| Retailing food, confectionery, tobacco, newspapers or children’s clothing | 4% |
| Transport or storage | 10% |
A first-year discount of 1% applies in the first year of VAT registration. The Flat Rate VAT calculator shows what a business on the scheme actually pays.
Limited cost businesses, those spending less than 2% of their turnover on relevant goods (or under £1,000 a year if that is more), must use a 16.5% flat rate regardless of sector. This was introduced to limit the scheme’s use by businesses with very low input costs.
Reverse charge for construction
Since March 2021, the domestic reverse charge for building and construction services means the customer, not the supplier, accounts for VAT on qualifying construction services. This applies to supplies reported under the Construction Industry Scheme and means the supplier’s invoice shows no VAT figure. The customer accounts for the VAT on both the output and input side of the same return.
The reverse charge does not apply to supplies to end users, to supplies of building materials on their own, or to supplies within a corporate group. It only affects VAT-registered businesses buying specified construction services from other VAT-registered businesses.
Common mistakes
The most frequent VAT errors on invoices and pricing:
- Subtracting 20% to remove VAT. The correct method is to divide by 1.20. The difference on a £1,200 gross invoice is £40.
- Treating exempt as zero-rated. A business making exempt supplies cannot reclaim input VAT, while a zero-rated business can. Misclassifying revenue as exempt when it is zero-rated means failing to reclaim VAT that is rightfully reclaimable.
- Charging VAT before registration. A business that has not reached the £90,000 threshold and is not voluntarily registered must not charge VAT on its invoices.
- Ignoring the Flat Rate Scheme limited-cost rule. Businesses spending very little on goods default to 16.5%, not the sector rate, which can make the scheme worse than standard accounting.
Information, not tax advice. Rates and thresholds are those published on gov.uk for 2026/27. Individual circumstances vary, so check with HMRC or an accountant before acting on them.