What Is VAT?

Updated: July 28, 2026

VAT, or Value Added Tax, is a tax charged on most goods and services in the UK. It is collected by businesses on behalf of HMRC and is ultimately paid by the final consumer.

UK VAT rates

  • Standard rate (20%) – applies to most goods and services.
  • Reduced rate (5%) – applies to certain items, such as domestic energy and children’s car seats.
  • Zero rate (0%) – applies to some goods like most food, children’s clothing, and books/newspapers.

Some supplies are exempt from VAT altogether, such as many financial services and some education or healthcare activities. This is different from zero-rated goods, which are taxable but at 0%.

VAT registration threshold

If your taxable turnover exceeds £90,000 in a rolling 12-month period (as of April 2024), you must register for VAT with HMRC. If you expect to go over the threshold within 30 days, registration is also required.

How VAT is calculated

Adding VAT to a net price

VAT = Net × Rate
Gross = Net + VAT

Example: Net £100 at 20% → VAT £20 → Gross £120

Removing VAT from a gross price

Net = Gross ÷ (1 + Rate)
VAT = Gross − Net

Example: Gross £120 at 20% → Net £100 → VAT £20

Try the A1 VAT Calculator to work this out instantly.

Who pays VAT?

VAT is charged by VAT-registered businesses on eligible sales. They collect VAT from customers and pass it to HMRC, while reclaiming VAT they’ve paid on business purchases (known as input VAT). Consumers cannot reclaim VAT and simply see it as part of the final price.

Important note

This information is for general guidance only. It does not replace professional tax, financial, or legal advice. For detailed rules and updates, always check HMRC’s official guidance or consult an accountant.

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