VAT Guide UK 2026: Rates, Threshold and How VAT Works

Quick VAT Checker

Type any amount, pick the VAT rate and choose Add or Remove VAT. The tool splits the figure into net, VAT and gross for the current 20% and 5% rates instantly. Use the main VAT Calculator for margin schemes and fuel scale charges.

Current UK VAT rates in 2026

VAT is a consumption tax on most UK goods and services. The standard rate has been 20% since 4 January 2011 (up from 17.5%). Two lower rates apply to specific categories, and a small group of supplies sit outside the system as exempt.

The rate you charge depends on what you sell, not what you earn. Getting the classification wrong is a common cause of underpaid VAT assessments, so check any borderline product against HMRC's category notices before you invoice.

The distinction between zero-rated and exempt matters more than it sounds. A zero-rated business is still VAT-registered, charges 0% VAT and can reclaim input VAT on its purchases. An exempt business cannot reclaim input VAT at all, which pushes true costs up. If everything you sell is exempt you cannot register for VAT even voluntarily.

Mixed supplies trip people up. A B&B breakfast is catering at 20%, but the room itself is standard-rated hotel accommodation - not zero-rated food. A printed book bundled with downloadable audio may split across two rates. When in doubt, check the specific HMRC notice before ringing it up.

VAT registration and deregistration thresholds

You must register for VAT the moment either HMRC test is met. The look-back test: your VAT taxable turnover in the previous 12 months (rolling, not the tax year) has exceeded 90,000 pounds. You have 30 days from the end of that month to register, and VAT applies from the first day of the second month after you crossed the line.

The look-forward test: at any point you expect turnover in the next 30 days alone to exceed 90,000 pounds. Register straight away and charge VAT from the date you realised, not from the end of the 30 days.

Taxable turnover is the total of everything you sell that is not exempt - so zero-rated sales still count. Sales of capital assets used in the business are excluded. Missing the threshold is a common mistake because the count is rolling, not calendar or tax year.

You can cancel your VAT registration once your taxable turnover in the next 12 months will fall below the deregistration threshold of 88,000 pounds (in force since 1 April 2024). You also cancel if you stop trading, join a VAT group or sell the business. HMRC processes cancellations in about three weeks and issues a final return.

Voluntary registration below 90,000 pounds is legal and often useful. It lets you reclaim input VAT on start-up costs, adds credibility with business customers, and avoids a scramble the day you cross the threshold. The downside is that B2C customers who cannot reclaim VAT effectively see your prices rise by 20%, so model the impact first.

How to work out VAT: add, remove and reverse-calculate

Three questions cover almost every VAT sum: how much is a net price plus VAT, how much VAT is inside a gross price, and what was the net before VAT was added? Each is a one-line formula.

Adding 20% VAT (net to gross): multiply the net price by 1.20. A 500 pound net invoice becomes 600 pounds gross, with 100 pounds of VAT.

Removing 20% VAT (gross to net): divide the gross price by 1.20. A 600 pound gross price becomes 500 pounds net, with 100 pounds of VAT. The till-staff shortcut - the VAT inside a 20% gross price is simply the total divided by 6.

For the 5% reduced rate, multiply by 1.05 to add and divide by 1.05 to remove. The VAT inside a 5% gross price is the total divided by 21, so a 315 pound domestic gas bill contains 15 pounds VAT and 300 pounds net energy.

Rounding matters. HMRC allows rounding VAT to the nearest penny per invoice line, but the total on the invoice must be the actual VAT charged, not re-rounded. For low-value cash retail you can round down in the customer's favour, but never round up.

The Quick VAT Checker below handles both directions and both current rates. For fuel scale charges, partial exemption or second-hand margin schemes, use the main VAT Calculator.

The Flat Rate Scheme in plain English

The Flat Rate Scheme (FRS) is a simplified way of working out how much VAT to hand over to HMRC. You still charge customers 20% VAT as normal, but instead of tracking every purchase you pay a fixed percentage of your gross (VAT-inclusive) turnover. The trade-off is that you cannot reclaim input VAT on most day-to-day costs.

You can join FRS if your VAT-exclusive taxable turnover for the next 12 months will be 150,000 pounds or less. You must leave the scheme once your total gross income (including VAT and any exempt sales) exceeds 230,000 pounds in a 12-month period.

The flat rate depends on your trade sector. Percentages range from around 4% for retailing food and newspapers to 14.5% for computer and IT consultancy. Newly registered businesses get a 1% discount off their sector rate for the first 12 months after VAT registration, which is worth claiming.

Since April 2017 HMRC has applied a limited cost business rule to stop labour-heavy consultants from over-benefiting. If your goods (not services) cost less than 2% of your turnover, or less than 1,000 pounds a year in absolute terms, you must use a flat rate of 16.5% regardless of your sector. In practice that is 19.8% of the net price and usually wipes out any FRS saving for pure-service traders.

FRS suits businesses with very low VATable costs - freelance writers, coaches, hairdressers renting a chair. It usually hurts businesses buying a lot of stock or equipment, because you lose the input VAT reclaim on those purchases. Model both approaches over a full year before opting in and review annually.

Making Tax Digital (MTD) for VAT

MTD for VAT is now compulsory for every UK VAT-registered business, whatever the turnover. HMRC completed the automatic sign-up of the last cohort in 2023, so any business that registers for VAT today is enrolled in MTD from day one - there is no separate opt-in step.

In practice MTD means three things. Keep your VAT records digitally (spreadsheets and cloud accounting both qualify). Submit VAT returns through functional compatible software that connects to HMRC's API. Maintain digital links between the software modules that build up your return, so figures are not retyped or copy-pasted by hand.

The return timetable is unchanged. Most businesses file every three months on a quarterly stagger, and the deadline for both filing and paying is one calendar month and seven days after the accounting period ends. A quarter ending 30 June is therefore due by 7 August.

Late returns now go through a points-based penalty system that replaced default surcharges on 1 January 2023. You pick up one point per missed deadline. Once you reach the threshold for your filing frequency (four points for quarterly filers) each further late return adds a 200 pound fixed penalty until you catch up and serve a compliance period.

Common VAT mistakes to avoid

Waiting too long to register. The 12-month test is rolling, not calendar. Businesses that only check at year-end often find they should have registered months earlier and now owe VAT on sales made at the pre-VAT price.

Treating zero-rated and exempt as the same. Zero-rated sales let you reclaim input VAT; exempt sales do not. If most of your income is exempt, only the input VAT tied to the taxable slice is recoverable, and the partial exemption calculation can be unforgiving.

Charging 20% on domestic gas and electricity. Household energy is 5%, but suppliers only apply the reduced rate if the customer confirms they qualify (broadly, 60% or more domestic use). Home-based businesses and landlords paying commercial rates on genuinely domestic supplies often overpay.

Missing the domestic reverse charge for construction (in force since 1 March 2021). For qualifying construction services between VAT-registered contractors the customer accounts for VAT, not the supplier. Charging VAT anyway means the buyer cannot reclaim it - and you still owe HMRC what you charged.

Frequently Asked Questions

What are the current UK VAT rates in 2026? Three rates: 20% standard on most goods and services, 5% reduced on domestic energy and children's car seats, and 0% zero-rated on most food, children's clothes, books and prescriptions. Insurance, health and financial services are exempt (a different status from zero).

When must I register for VAT? Within 30 days of the end of any month in which your rolling 12-month taxable turnover exceeded 90,000 pounds, or immediately if you expect turnover in the next 30 days alone to exceed 90,000 pounds. That threshold has been in force since 1 April 2024.

How do I add 20% VAT to a net price? Multiply the net price by 1.20. A 250 pound net invoice becomes 300 pounds gross, containing 50 pounds of VAT. The Quick VAT Checker above does this instantly for both the 20% and 5% rates.

How do I work out the VAT already inside a 20% gross price? Divide the gross price by 6 to isolate the VAT, or by 1.20 to find the net. A 120 pound gross price contains 20 pounds VAT and 100 pounds net. For 5% prices, divide by 21.

What is the difference between zero-rated and exempt? Zero-rated sales are still taxable at 0%, so you stay VAT-registered and reclaim input VAT on purchases. Exempt sales sit outside VAT and block input recovery, which can add real cost.

Do I need MTD-compatible software to file a VAT return? Yes. Every VAT-registered UK business must submit returns through functional compatible software linked to HMRC's API and keep digital VAT records. Spreadsheets are allowed if joined to bridging software by digital links.

Is the Flat Rate Scheme worth joining? It suits pure-service businesses with very low goods costs. If you meet the limited cost business rule (goods under 2% of turnover or under 1,000 pounds a year) you must use the 16.5% rate, which normally cancels the saving.

Can I cancel my VAT registration if my turnover drops? Yes. You can deregister once you can show taxable turnover in the next 12 months will be 88,000 pounds or less. HMRC processes cancellation in about three weeks and requires a final return.

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