Key facts
- Standard VAT rate: 20% on most goods and services
- Registration threshold: £90,000 rolling 12-month taxable turnover
- Deregistration threshold: £88,000 if turnover falls below
- VAT returns are filed quarterly through Making Tax Digital software
What Is VAT?
VAT is a consumption tax applied at each stage of the supply chain. When you buy goods or services from a VAT-registered supplier, they charge you VAT. When you sell goods or services to your customers, you charge them VAT. The net amount you owe HMRC is the difference: VAT collected minus VAT paid.
This system means that as a VAT-registered business, you act as an unpaid tax collector for HMRC. You collect VAT on HMRC's behalf and remit the net amount quarterly (or monthly under certain schemes). To quickly add or remove VAT from any invoice amount, use our free VAT calculator.
The VAT Registration Threshold
You must register for VAT when your taxable turnover exceeds £90,000 in any rolling 12-month period (the threshold increased from £85,000 in April 2024). You can also register voluntarily below this threshold, which can be beneficial if your customers are businesses (who can reclaim the VAT) and you buy significant amounts of VAT-inclusive goods.
If you operate in construction, note that CIS registration and VAT registration often coincide at similar turnover levels. Read our CIS deductions guide to understand both obligations together.
Register Promptly
You must notify HMRC and register for VAT within 30 days of exceeding the threshold. Late registration carries penalties and backdated VAT liability. HMRC will treat you as if you should have been charging VAT from the date you should have registered.VAT Rates in the UK
| Rate | Percentage | Examples |
|---|---|---|
| Standard Rate | 20% | Most goods and services |
| Reduced Rate | 5% | Domestic fuel, children's car seats, energy-saving materials |
| Zero Rate | 0% | Food (most), children's clothing, books, public transport |
| Exempt | N/A | Insurance, education, healthcare, financial services |
Zero-rated and exempt supplies are both outside standard VAT, but the distinction matters: if you make zero-rated supplies, you can still reclaim VAT on your inputs. If you make exempt supplies, you generally cannot reclaim input VAT. For the complete breakdown by item category, see our UK VAT rates guide.
How to Add and Remove VAT
Adding VAT: Multiply the net (ex-VAT) amount by 1.20 for standard rate. So a £1,000 invoice becomes £1,200 including VAT. The VAT amount is £200.
Removing VAT (reverse calculation): Divide the VAT-inclusive (gross) amount by 1.20. So £1,200 ÷ 1.20 = £1,000 net. The VAT component is £1,200 minus £1,000 = £200. Do not multiply the gross by 20%, as this gives the wrong answer (£240, not £200).
UK VAT Calculator: Add or Remove VAT
Instantly add or remove VAT at 20%, 5%, or a custom rate. Shows the net amount, VAT component, and gross total side by side.
VAT Schemes for Small Businesses
HMRC offers several schemes that can simplify VAT accounting for smaller businesses. The Flat Rate Scheme (for businesses with turnover below £150,000) lets you pay a fixed percentage of gross turnover rather than tracking every transaction. Rates vary by business type and range from 4% to 14.5%.
The Cash Accounting Scheme (turnover below £1.35m) lets you account for VAT when payment is received and paid, rather than on invoice date. This helps cash flow for businesses with long payment terms. The Annual Accounting Scheme lets you make advance payments and file just one return per year. If you run a limited company, model your full corporation tax liability alongside your VAT position for a complete picture.
VAT on Digital Services
If you sell digital services (ebooks, software, online courses, streaming) to consumers in EU countries, you may have obligations under the EU's OSS (One Stop Shop) scheme. Post-Brexit, UK businesses can register for OSS to handle EU VAT in one place rather than registering in each member state. HMRC has detailed guidance on the requirements.
Related Calculators
Frequently Asked Questions
The VAT registration threshold for 2026/27 is £90,000. If your taxable turnover exceeds £90,000 in any rolling 12-month period, or you expect it to exceed £90,000 in the next 30 days alone, you must register for VAT. You can voluntarily register below this threshold.
The standard VAT rate is 20%, charged on most goods and services. The reduced rate of 5% applies to items like domestic energy, children's car seats, and some energy-saving materials. The zero rate (0%) applies to most food, children's clothing, books, and newspapers. Some services like financial and medical services are VAT-exempt.
The Flat Rate Scheme lets businesses with turnover below £150,000 (excluding VAT) pay a fixed percentage of gross turnover instead of calculating VAT on every transaction. Rates vary by sector (e.g., 14.5% for computer and IT consultancy). First-year businesses get a 1% discount. This simplifies accounting but may not suit businesses with high input VAT.
VAT returns are due quarterly, with payment and submission within one calendar month and seven days after the end of each VAT period. All VAT-registered businesses must file digitally through Making Tax Digital-compatible software. Late filing incurs default surcharge penalties.
You can deregister for VAT if your taxable turnover falls below £88,000 and is expected to stay below that level. You must notify HMRC and complete a final VAT return covering the period up to deregistration.
You can reclaim VAT on goods and services used wholly for business purposes. You cannot reclaim VAT on exempt supplies, entertainment costs (with limited exceptions), or personal use. Mixed-use items may require apportionment between business and private use.
To add 20% VAT, multiply the net amount by 1.20. To remove VAT from a gross price, divide by 1.20, not multiply by 0.80. For example, £1,200 gross ÷ 1.20 = £1,000 net plus £200 VAT. Multiplying £1,200 by 20% incorrectly gives £240.
For goods, UK VAT generally applies on sales to consumers in Great Britain. Exports to EU customers are usually zero-rated as exports, but the customer may owe import VAT in their country. For digital services to EU consumers, you may need to register for VAT in the customer's country or use the EU OSS scheme if you have an EU establishment.
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James Hartley is a CIMA qualified financial analyst and Founder and Lead Financial Analyst at WhatsUK, with 8+ years in UK tax, payroll, and compliance. He builds every calculator on WhatsUK and authors all editorial content, ensuring every figure is verified against official HMRC sources before publication.
Sources & Official References
- HMRC VAT Notice 700: The VAT Guide- Definitive HMRC guidance on all VAT rules
- HMRC VAT Registration Threshold- £90,000 rolling 12-month threshold 2026/27
- HMRC Flat Rate Scheme for Small Businesses- Eligible businesses and sector rates
- HMRC Making Tax Digital for VAT- Mandatory from April 2022
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Disclaimer: This calculator provides estimates based on standard HMRC rates for 2026/27. Results may vary based on individual circumstances. This is not financial advice. Always consult a qualified accountant or CIMA-qualified financial adviser for personal tax matters.