VAT (Value Added Tax) is the UK's consumption tax — added to the price of most goods and services. Unlike US sales tax, UK prices are usually displayed including VAT. So when you see £120 on a shelf, that already includes £20 in VAT at the standard rate. This guide covers all three rates, what falls into each category, and the correct way to add or remove VAT.
The Three UK VAT Rates
| Rate | Category | Examples |
|---|---|---|
| 20% | Standard Rate | Electronics, clothing, software, professional services, restaurants, alcohol, most goods and services |
| 5% | Reduced Rate | Domestic energy (gas, electricity), children's car seats, mobility aids, residential property conversions, nicotine patches |
| 0% | Zero-Rated | Food (most, including supermarket food, cold takeaway), children's clothing and shoes, books, newspapers, prescriptions, public transport |
Some goods/services are VAT-exempt (not zero-rated) — insurance, financial services, health and education. Exempt means no VAT charged, and businesses can't claim back VAT on costs related to exempt activities.
Adding VAT to a Price (Exclusive → Inclusive)
Standard rate (20%): Multiply by 1.20
£500 ex-VAT × 1.20 = £600 inc-VAT
VAT amount = £600 − £500 = £100
Reduced rate (5%): Multiply by 1.05
£200 energy bill ex-VAT × 1.05 = £210 inc-VAT
VAT amount = £10
Removing VAT from a VAT-Inclusive Price (Inclusive → Exclusive)
Standard rate (20%): Divide by 1.20
£120 inc-VAT ÷ 1.20 = £100 ex-VAT
VAT amount = £120 − £100 = £20
⚠️ Common mistake: people calculate 20% of £120 = £24. That's wrong. You must divide, not take a percentage of the inclusive price.
Quick mental maths for 20% VAT:
To get the ex-VAT price: divide by 6, then subtract from total.
£120 ÷ 6 = £20 VAT. £120 − £20 = £100 ex-VAT. ✓
Common VAT Examples
| Item | VAT Rate |
|---|---|
| Food from supermarket | 0% |
| Hot food from restaurant | 20% |
| Cold takeaway (sandwiches, pastries) | 0% |
| Crisps, confectionery, soft drinks | 20% |
| Children's clothing (under 14) | 0% |
| Adult clothing | 20% |
| Books, newspapers, magazines | 0% |
| E-books, audiobooks, e-newspapers | 0% |
| Home energy (gas, electricity) | 5% |
| Laptops, phones, electronics | 20% |
| Train, bus, taxi, plane (UK) | 0% |
VAT Registration Threshold
UK businesses must register for VAT once their taxable turnover exceeds £90,000 in any rolling 12-month period (2025-26 threshold). Once registered, they must charge VAT on sales, file VAT returns (usually quarterly), and can reclaim VAT paid on business purchases. Businesses below the threshold can register voluntarily — beneficial if selling to VAT-registered businesses who can reclaim the VAT.
Calculate VAT instantly
Open VAT Calculator →Source: HMRC VAT Notice 700, gov.uk. Rates and thresholds 2025-26. Not financial or tax advice.
Official sources
Every rate and threshold in this guide is checked against the official government sources below. Always confirm figures for your own situation before filing.