VAT (Value Added Tax) is charged at 20% on most goods and services. Here's how the UK VAT system works, current rates, and how to add and remove VAT correctly.
VAT (Value Added Tax): VAT is a consumption tax charged at each stage of the supply chain. Businesses registered for VAT charge it on their sales (output VAT) and reclaim it on their purchases (input VAT), paying HMRC the difference. Consumers pay the final VAT cost embedded in the price of goods and services. The standard rate in 2026 is 20%.
| Rate | % | Applies to |
|---|---|---|
| Standard rate | 20% | Most goods and services |
| Reduced rate | 5% | Home energy, children's car seats, some health products |
| Zero rate | 0% | Most food, children's clothing, books, public transport |
| Exempt | N/A | Financial services, insurance, education, health |
Zero-rated and exempt are different: zero-rated businesses can still register for VAT and reclaim input VAT; exempt businesses cannot register and cannot reclaim input VAT.
These are the two most commonly used VAT calculations:
Use the free VAT calculator above to do these calculations instantly without manual arithmetic.
You must register for VAT if your VAT-taxable turnover exceeds £90,000 in any rolling 12-month period (2026 threshold). You can also register voluntarily below this threshold — useful if you sell to VAT-registered businesses who can reclaim the VAT you charge.
Once registered you must:
The VAT registration threshold in 2026 is £90,000 in taxable turnover over any rolling 12-month period. If you exceed this, you must register within 30 days.
To remove 20% VAT from a gross price, divide by 1.20. For example, a £240 invoice including VAT has a net value of £240 ÷ 1.20 = £200, with £40 of VAT. Use the free VAT calculator for instant results.
The flat rate scheme (FRS) allows small businesses with turnover under £150,000 to pay a fixed percentage of gross turnover to HMRC rather than calculating input and output VAT separately. The percentage varies by industry — typically 7–14.5%. It simplifies administration but may result in paying more or less VAT than under standard accounting.
Most basic food is zero-rated — not exempt. This is an important distinction because zero-rated businesses can still register for VAT and reclaim input tax on their purchases. Hot food, confectionery, crisps and alcohol are standard-rated at 20%.
Use the free CalcHubUK VAT calculator to add or remove VAT at standard, reduced or any custom rate.
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