UK VAT explained: rates, registration and calculations

VAT, or value added tax, is a tax on most goods and services sold in the UK, collected by businesses and passed on to HMRC. If you buy things, you pay it without thinking. If you run a business, you may have to charge it, report it and pay it over. Either way, it helps to be able to add VAT to a price, take it off again and understand which rate applies. This guide explains the three rates, shows the sums for adding and removing VAT with worked examples, explains how input tax and output tax produce the amount a business owes, and sets out when a business has to register. The figures are those in force for 2026/27 as published on GOV.UK, and rules change, so check the official guidance for your own situation.

By Valtrinity. Updated 18 October 2026.

The three rates

The standard rate of VAT is 20 per cent. It applies to most goods and services, from furniture and electronics to restaurant meals and professional fees.

The reduced rate is 5 per cent. It applies to a short list, such as domestic fuel and power, children's car seats and some mobility aids for older people. The zero rate, 0 per cent, applies to things such as most food, books and newspapers, children's clothes and shoes, and public transport. The zero rate is still a VAT rate, which means a business selling zero-rated goods can usually reclaim the VAT it pays on its costs.

A third group is exempt. Exempt supplies include most insurance, postage stamps, and many types of education, health and financial services. A business that makes only exempt supplies cannot register for VAT or reclaim VAT on its costs. The difference between zero-rated and exempt matters for businesses and is worth checking on GOV.UK.

Adding VAT to a price

To add 20 per cent VAT to a price without VAT, multiply by 1.2. A service priced at £250 before VAT has £50 of VAT, so the total is £300. A product at £19.99 before VAT has VAT of £4.00 (£3.998 rounded to the nearest penny) and costs £23.99 in total.

For the 5 per cent rate, multiply by 1.05. A price of £400 before VAT is £420 with VAT. For zero-rated goods the price stays the same.

A common mistake is to add 20 per cent by multiplying by 1.20 and then subtract 20 per cent to reverse it. That does not work, as the next section shows.

Taking VAT out of a price that includes it

To remove 20 per cent VAT from a price that already includes it, divide by 1.2. A shelf bought for £84 including VAT cost £70 before VAT, and the VAT is £14. A quicker way to find the VAT itself is to divide the gross price by 6, because 20 per cent VAT is one sixth of the VAT-inclusive price. £84 divided by 6 is £14.

For the 5 per cent rate, divide by 1.05, or divide the gross price by 21 to find the VAT. A gas bill of £126 including VAT at 5 per cent has VAT of £6 and a pre-VAT cost of £120.

Do not take 20 per cent off £84. That gives £16.80 and a pre-VAT price of £67.20, which is wrong. The 20 per cent was worked out on the original £70, not on the larger £84, which is why division is needed.

Input tax, output tax and what a business pays

A VAT-registered business adds VAT to its sales. That is called output tax. When the business buys goods and services for its work, it pays VAT on those purchases. That is called input tax, and in most cases it can be reclaimed.

Each VAT period, the business works out output tax minus input tax. If the result is positive, it pays that amount to HMRC. If negative, it gets a refund. Suppose in a quarter a business sells goods for £12,000 before VAT, charging £2,400 VAT. It buys supplies and services costing £4,000 before VAT, paying £800 VAT. It owes £2,400 minus £800, which is £1,600.

So the business does not bear the VAT cost itself. The tax is borne by the final consumer, and each business in the chain effectively passes on the VAT on the value it has added. That is why VAT is called a tax on value added.

When you must register

A business must register for VAT if its taxable turnover goes over £90,000 in any 12-month period. It must also register if it expects to go over that figure in the next 30 days alone. Taxable turnover means the total of everything sold that is not exempt, including zero-rated sales. The turnover is checked on a rolling basis, not only by the tax year.

Registration is voluntary below the threshold, and some businesses choose it so they can reclaim VAT on their costs, or because customers who are VAT registered expect a VAT invoice. The downside is the extra paperwork and that, for customers who are individual consumers and cannot reclaim VAT, prices go up by 20 per cent or your own margin goes down.

If a business later falls below the deregistration threshold, which is £88,000, it may be able to cancel its registration. Check GOV.UK for the current thresholds, because the figures are reviewed and may change.

Invoices, records and returns

A VAT invoice must show certain details, including your VAT number, the date, a description of the goods or services, the price before VAT, the rate and the amount of VAT. The standard UK VAT number is the letters GB followed by nine digits. You can check that a number has the right format with a validator, and check that a trader is registered using the official check on GOV.UK.

VAT-registered businesses must keep VAT records for six years and file returns, normally every three months, using software that works with the Making Tax Digital system. Check the exact due dates for your return and payment on GOV.UK, as they depend on your accounting period.

Late returns and payments can bring penalties and interest, so set reminders for the deadline and keep invoices and receipts organised from the start.

Pricing with VAT: common questions

If you sell to consumers, prices usually include VAT. If you sell to other businesses, prices are often shown without VAT, with the VAT added at the end. Always make clear which one you are quoting.

Suppose you want to receive £100 net per item, and the VAT rate is 20 per cent. The shelf price needs to be £120. If you set the price at £100 and treat it as VAT inclusive, you receive only £83.33 and £16.67 goes to HMRC.

Check the rate for each product. A bundle can include both standard-rate and zero-rated items, and the rules for mixed supplies are detailed. If you are unsure, ask HMRC or an accountant before you issue the invoices.

Tools mentioned in this guide

Frequently asked questions