Value Added Tax in the UK is applied at different rates depending on the type of goods or services supplied. If you want an updated overview for the current year, you can read our complete guide to 2024 UK VAT rates which explains how these rates apply in practice.
Standard Rate of VAT
The standard rate of VAT in the UK is 20%. This rate applies to most goods and services unless a reduced or zero rate applies. Businesses that are VAT registered must charge 20% on standard rated supplies and report this on their VAT return.
Reduced Rate of VAT
The reduced rate of VAT is 5%. This rate applies to certain goods and services such as domestic fuel and power, and some energy saving materials when conditions are met. Businesses must check eligibility rules before applying the 5% rate.
Zero Rate of VAT
The zero rate of VAT is 0%. Zero rated supplies include many food items, children’s clothing, and books. Although VAT is charged at 0%, these sales are still taxable supplies and count towards VAT registration thresholds.
Exempt Supplies
Exempt supplies are not subject to VAT. Examples include certain financial services, insurance, and education services. Exempt supplies do not allow input VAT recovery in the same way as taxable supplies.
Why Correct VAT Classification Matters
Using the correct VAT rate affects pricing, accounting records, and VAT returns. Businesses must review HMRC guidance when introducing new products or services to ensure the correct treatment is applied.
