VAT explained · UK guide · 2026
What is VAT? How VAT works in the UK.
Source: gov.uk/vat-rates. Figures current for 2026/27.
What is VAT?
VAT (Value Added Tax) is a consumption tax charged on most UK goods and services. The standard rate is 20%. Businesses with taxable turnover above the £90,000 registration threshold must register, charge VAT to customers, and pay it to HMRC quarterly. Registered businesses can reclaim VAT paid on business purchases.
UK VAT rates
| Rate | Amount | Examples |
|---|---|---|
| Standard rate | 20% | Most goods and services — electronics, clothing, professional fees |
| Reduced rate | 5% | Domestic fuel, children's car seats, some home improvements |
| Zero rate | 0% | Many cold food supplies for off-premises consumption, children's clothing, books, newspapers |
| Exempt | No VAT charged | Medical, education, insurance, finance, most property lettings |
Source: gov.uk/vat-rates.
VAT on food, drink and catering
Food and drink do not have one VAT treatment. Most food and drink for human consumption is zero-rated, but there are important exceptions. Alcoholic drinks, confectionery, crisps and savoury snacks, hot food, ice cream, soft drinks and mineral water are generally standard-rated. The way an item is supplied matters too: catering, food eaten on the supplier's premises or in a designated customer area, and hot takeaway food and drink are generally standard-rated.
Cold takeaway food that is consumed away from the premises is often zero-rated, unless it is an item that is standard-rated in its own right. Cafes, restaurants and takeaways should check the detailed rules before setting prices or configuring a till — product ingredients, temperature, intended consumption and the supply arrangement can all affect the result.
Temporary children's-meal rate: 25 June to 1 September 2026
HMRC has announced a temporary 5% rate for certain children's meals supplied for consumption on the premises during this period. Takeaway meals do not qualify. Check the official conditions before applying the rate, particularly where items are sold separately or alongside an adult menu.
Sources: GOV.UK VAT rates on goods and services, VAT Notice 709/1 (catering and takeaway food) and HMRC's temporary children's-meal rate brief.
What do net of VAT and exclusive of VAT mean?
Net of VAT and exclusive of VAT normally mean that the quoted price is before VAT is added. Gross or VAT-inclusive pricing includes VAT in the amount shown. For example, at the 20% standard rate, a £100 net price becomes £120 including VAT.
Net / exclusive
The starting price before VAT.
VAT
The VAT amount calculated at the applicable rate.
Gross / inclusive
The total price after VAT is included.
The applicable VAT treatment depends on what you supply and the relevant rules. See the GOV.UK guidance on charging VAT. For a quick calculation, use the UK VAT calculator.
FAQs
What is VAT?
VAT (Value Added Tax) is a tax charged on the sale of most goods and services in the UK. Businesses registered for VAT must add VAT to their prices, collect it from customers, and pay it to HMRC. VAT-registered businesses can also reclaim VAT they have paid on business purchases (input VAT). The standard rate of VAT is currently 20% (see gov.uk/vat-rates).
Who pays VAT?
Ultimately, the end consumer pays VAT — it is included in the price of goods and services. VAT-registered businesses act as collectors on HMRC's behalf. They add VAT to their sales (output VAT), reclaim VAT on their purchases (input VAT), and pay the difference to HMRC each quarter. If input VAT exceeds output VAT, HMRC repays the difference.
What are the UK VAT rates?
Standard rate: 20% — applies to most goods and services. Reduced rate: 5% — applies to some goods and services including domestic fuel, children's car seats, and certain home improvements. Zero rate: 0% — applies to many cold food supplies for off-premises consumption, children's clothing, books, and newspapers. Food and drink rules have important exceptions, particularly for catering, hot food, alcohol, confectionery and soft drinks. These transactions are taxable but at 0% — different from exempt supplies. Exempt supplies do not attract VAT at all (see gov.uk/vat-rates).
What does net of VAT mean?
A price stated net of VAT is the price before VAT is added. If the applicable rate is 20%, a £100 net price becomes £120 including VAT. The correct rate depends on the goods or services supplied and the relevant VAT rules.
What does exclusive of VAT mean?
A price exclusive of VAT does not include VAT. A VAT-registered supplier normally adds the applicable VAT to that quoted price when charging a customer. Exclusive of VAT and net of VAT usually describe the same starting point, but check the invoice wording and rate applied.
What is input VAT and output VAT?
Output VAT is VAT you charge on your sales. Input VAT is VAT you pay on your business purchases. Each VAT return calculates: output VAT minus input VAT. If output VAT exceeds input VAT, you pay the difference to HMRC. If input VAT exceeds output VAT (e.g. in a period of heavy investment), HMRC repays the difference.
When does a business need to register for VAT?
Mandatory registration is required when taxable turnover in any rolling 12-month period exceeds the VAT threshold (currently £90,000 — see gov.uk/vat-registration-thresholds). You must register within 30 days of crossing the threshold. Voluntary registration is available at any turnover level.
Questions about VAT registration?
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