UK VAT Rates 2026: Complete Guide to Standard, Reduced & Zero Rates

Value Added Tax (VAT) is a consumption tax applied to most goods and services sold in the UK. Knowing which rate applies matters if you run a business, file a VAT return or want to understand why a receipt and a shelf label show different prices. This guide covers every UK VAT rate for the 2026/27 tax year, explains which items fall into each category, and covers the flat rate scheme for smaller businesses.

The three VAT rates

HMRC applies three distinct VAT rates. Each one targets a different category of goods and services, and understanding which rate applies to your transaction can save you money and keep your records accurate.

Standard rate (20%)

The standard rate of 20% has been in place since 4 January 2011. It applies to the vast majority of goods and services sold in the UK, including electronics, clothing for adults, professional services, restaurant meals, alcohol, and most retail goods.

If an item or service does not specifically qualify for the reduced rate, zero rate, or an exemption, the standard rate applies by default. For businesses, this means charging 20% on top of your net price when invoicing VAT-registered customers.

Reduced rate (5%)

The reduced rate targets a narrow set of goods and services that the government treats as necessities or socially useful, but which do not qualify for the zero rate:

• Domestic fuel and power: Gas for household use. Household electricity is normally 5% as well, but the government has removed VAT from household electricity bills in Great Britain from 1 October 2026 to 30 June 2027.
• Children's car seats: Seats designed for children under 12 or below 135cm
• Smoking cessation products: Nicotine patches, gum, and similar aids
• Mobility aids for the elderly: Stairlifts, adjustable beds, and walk-in baths for qualifying individuals
• Contraceptive products

Energy-saving materials installed in homes, such as insulation, solar panels, heat pumps and, since February 2024, home batteries, are zero-rated at the moment, not 5%. The zero rate has applied in Great Britain since April 2022 and in Northern Ireland since May 2023, and runs until 31 March 2027. From 1 April 2027 these installations are due to go back to 5%. HMRC's VAT Notice 708/6 lists the materials that qualify.

Zero rate (0%)

Zero-rated goods carry a VAT charge of 0%. The key difference from exempt goods is that businesses selling zero-rated items can still reclaim input VAT on their own purchases. This distinction matters enormously for cash flow and profitability.

Common zero-rated categories include:

• Most food and drink: Raw ingredients, bread, milk, fruit, vegetables, meat, and fish (but not catering, hot takeaway food, confectionery, crisps, or alcoholic drinks)
• Children's clothing and footwear: Garments designed for children under 14
• Books, newspapers, and magazines: Including e-books and e-newspapers since May 2020
• Prescription medicines and medical equipment
• Construction of new residential buildings: The first sale of a newly built home
• Energy-saving materials installed in homes: Insulation, solar panels, heat pumps and home batteries, until 31 March 2027
• Exports: Goods sold to customers outside the UK
• Public transport: Bus and train fares

The jaffa cake problem

One of the most famous VAT disputes involved whether Jaffa Cakes are biscuits (standard-rated) or cakes (zero-rated). McVitie's successfully argued they are cakes because they go hard when stale, while biscuits go soft. The tribunal agreed, and Jaffa Cakes remain zero-rated. This case illustrates just how specific and occasionally absurd the boundary between zero-rated and standard-rated food can be.

VAT exempt supplies

Exempt supplies sit outside the VAT system entirely. Unlike zero-rated goods, businesses making only exempt supplies cannot register for VAT or reclaim input tax. Major exempt categories include:

• Insurance
• Finance and credit
• Education (by eligible bodies)
• Health services provided by registered practitioners
• Burial and cremation services
• Subscriptions to trade unions and professional bodies
• Betting, gaming, and lottery
• Some land and property transactions

The VAT registration threshold

For the 2026/27 tax year, you must register for VAT if your taxable turnover exceeds £90,000 in any rolling 12-month period. You can also register voluntarily below this threshold, which is often worthwhile if most of your customers are VAT-registered businesses, since they can reclaim the VAT you charge and you can reclaim VAT on your own purchases.

The deregistration threshold is £88,000. If your taxable turnover drops below this level, you can apply to cancel your VAT registration.

The Flat Rate Scheme

Small businesses with a taxable turnover of £150,000 or less can join the Flat Rate Scheme. Instead of tracking VAT on every purchase and sale, you pay a fixed percentage of your gross turnover to HMRC and keep the difference. The percentage varies by industry:

If you are a limited cost business (relevant goods under 2% of your VAT-inclusive turnover, or under £1,000 a year), you pay 16.5% whatever your sector. The full HMRC sector table is in our Flat Rate Scheme guide.

New businesses joining the flat rate scheme receive a 1% discount in their first year. The scheme simplifies bookkeeping but may not always save you money, particularly if you have high input VAT from buying goods. Run the numbers both ways before committing.

VAT on imports and exports

Since Brexit, businesses importing goods from the EU pay import VAT at the point of entry (or via postponed VAT accounting on their VAT return). Exports to both EU and non-EU countries remain zero-rated, provided you hold evidence of export. This is one area where the rules have changed significantly, so keeping documentation is critical to support zero-rating on your returns.