UK VAT rates

For the 2026/27 period, the main UK VAT rates remain 20%, 5% and 0%. The compulsory VAT registration threshold for a UK-established business remains £90,000 of taxable turnover, while the deregistration threshold remains £88,000.

Those headline figures are only part of the story. A business also needs to decide whether each sale is standard-rated, reduced-rated, zero-rated, exempt or outside the scope of VAT. Those categories can have very different consequences for what you charge customers and what VAT you can recover on business costs.

This guide explains the current UK VAT rates, the difference between zero-rated and exempt supplies, when transactions fall outside the VAT system, how the £90,000 registration threshold works, and the records VAT-registered businesses need to keep.

UK VAT rates for 2026/27 at a glance

What is the standard UK VAT rate?

The standard UK VAT rate is 20%. It applies to most taxable goods and services unless a specific VAT rule says that the transaction qualifies for the reduced rate, zero rate, exemption or another treatment.

For many service businesses, consultants, agencies, trades and professional service providers, 20% will therefore be the normal starting point once the business is VAT registered.

If a business sells an item for £100 excluding VAT at the standard rate, it normally adds £20 VAT and charges the customer £120 in total.

Businesses should not assume a sale is standard-rated merely because it looks similar to another taxable transaction. VAT treatment depends on the precise goods or services supplied and the circumstances of the sale.

What is reduced-rate VAT at 5%?

The reduced VAT rate is 5%. It only applies where VAT legislation specifically allows it and where the necessary conditions are met.

HMRC examples include certain domestic fuel and power supplies, children's car seats and some qualifying mobility aids. Other reduced-rate areas have their own detailed conditions.

This means a business should not simply choose 5% because it believes its product or service deserves a lower tax rate. The transaction must fall within a specific reduced-rate provision.

Where you sell products or services with different VAT treatments, your bookkeeping and accounting software should record those rates separately. Accusolve can help businesses configure suitable VAT coding through our Accounting Software Setup service.

What does zero-rated VAT mean?

A zero-rated supply is still a taxable supply. The VAT rate is simply 0%.

This distinction matters because a VAT-registered business making zero-rated taxable supplies can normally recover VAT on relevant business purchases, subject to the usual input VAT rules.

Examples can include many basic food products and children's clothing, as well as qualifying exports where the VAT rules and evidence requirements are satisfied.

A zero-rated business therefore does not necessarily have "nothing to do with VAT". It may still need to:

• Register for VAT if its taxable turnover exceeds the relevant threshold.
• Record zero-rated sales correctly.
• Issue appropriate VAT invoices.
• Include zero-rated transactions in VAT records and returns where required.
• Retain evidence supporting the zero-rating.
• Use Making Tax Digital compatible records and software.

Zero-rated VAT vs VAT exempt: what is the difference?

Zero-rated and exempt transactions are often confused because the customer may pay no VAT in either case. From an accounting perspective, however, they are very different.

A zero-rated sale is a taxable sale at 0%. An exempt transaction is not a taxable supply for these purposes. That difference affects both VAT registration turnover and the business's ability to recover VAT on its costs.

What types of transactions can be VAT exempt?

HMRC identifies a number of categories where supplies may be exempt from VAT. These can include certain financial services, insurance, education, healthcare and transactions involving property and land.

The precise treatment depends on the nature of the service and the legal conditions that apply. Property is particularly important because some property transactions are exempt while others can become taxable, including where an option to tax is relevant.

A business that makes both taxable and exempt supplies can become partly exempt. In that situation, VAT on overheads and other costs may need to be apportioned and some input VAT may not be recoverable.

Partial exemption calculations can become significant for businesses with large property, finance or mixed activity costs. It is worth checking the position before assuming all VAT on expenditure can be reclaimed.

What does outside the scope of VAT mean?

An outside-the-scope transaction is different again. It is not simply a zero-rated or exempt transaction; instead, it falls outside the UK VAT system in the relevant circumstances.

GOV.UK examples include certain statutory fees and goods or services used outside the UK. International transactions can also depend heavily on the place-of-supply rules.

For businesses trading internationally, determining whether a transaction is UK taxable, zero-rated or outside the scope can require a review of:

• Where the supplier belongs.
• Where the customer belongs.
• Whether the customer is a business or consumer.
• Where goods are located when supplied.
• Where goods are dispatched from and delivered to.
• Whether export evidence is available.
• Whether reverse-charge rules apply.
• Whether an online marketplace is treated as the supplier.

Overseas businesses and marketplace sellers can find these rules particularly difficult. Our UK VAT Registration & Compliance for Non-Residents and Ecommerce Accounting UK services are designed for businesses dealing with these cross-border issues.

What is the VAT registration threshold in 2026/27?

The VAT registration threshold for UK-established businesses remains £90,000 for 2026/27. The VAT deregistration threshold remains £88,000.

Taxable turnover for registration purposes includes standard-rated, reduced-rated and zero-rated taxable supplies. It does not simply mean the value of sales on which the business physically added VAT.

This is an important point for businesses selling largely zero-rated goods. A business can potentially cross the VAT registration threshold even though much of its output VAT is charged at 0%.

Businesses should monitor taxable turnover on a rolling basis rather than waiting until the annual accounts are prepared. If you are close to the threshold, our VAT Registration service can help establish the registration date and complete the HMRC process.

Do non-UK businesses get the £90,000 VAT threshold?

Not necessarily. Overseas businesses that are not established in the UK can be subject to different VAT registration rules and may need to register when they begin making taxable UK supplies rather than relying on the domestic £90,000 threshold.

This is especially relevant to overseas ecommerce brands, importers, Amazon FBA sellers, businesses using UK fulfilment centres and companies making taxable supplies in the UK without a UK establishment.

Non-resident businesses should therefore obtain advice before using the £90,000 figure as a registration trigger. Accusolve's UK VAT Registration service includes support for overseas owners and international sellers.

How VAT rates affect pricing

VAT classification affects more than the VAT return. It can have a direct effect on margins and customer pricing.

A business selling to consumers often works with VAT-inclusive prices. If a £120 consumer selling price is standard-rated, £20 of that amount represents VAT and the net revenue is £100.

If a business incorrectly assumes that a supply is zero-rated and later discovers it should have charged 20%, HMRC may still expect the VAT. The business may then have to fund the VAT from the amount already collected from its customer.

For a high-volume business, that mistake can be expensive. VAT rate checking should therefore be part of product setup, pricing and bookkeeping rather than something reviewed only when the VAT return is due.

VAT rates for ecommerce businesses

Ecommerce businesses often have a higher risk of VAT coding errors because one sales channel can contain products with several different VAT treatments.

A typical online seller might have:

• Standard-rated products.
• Zero-rated product lines.
• Sales through Amazon, eBay or another marketplace.
• Direct Shopify or website sales.
• Refunds and returns.
• Imports and postponed import VAT.
• Exports which require evidence to support zero-rating.
• Payment processor fees with different VAT treatments.

The accounting system needs to distinguish those flows correctly. A single marketplace payout should not simply be posted as one gross sales figure without considering VAT, fees, refunds and other deductions.

Accusolve's Ecommerce Accounting UK support includes marketplace reconciliations, VAT coding and cloud bookkeeping for online sellers.

Making Tax Digital for VAT

VAT-registered businesses are generally required to follow Making Tax Digital for VAT unless an exemption applies. HMRC automatically enrols new VAT-registered businesses into MTD for VAT in most cases.

VAT records must be maintained digitally using compatible software, and businesses using more than one software product must maintain the required digital links between them.

Digital VAT records include information such as:

• The VAT on supplies made.
• The VAT on supplies received.
• The tax point or time of supply.
• The net value of purchases and sales.
• VAT adjustments.
• Reverse-charge transactions.
• Details of VAT accounting schemes used.

If your VAT records are currently managed through spreadsheets or disconnected systems, Accounting Software Setup can help establish an MTD-ready process.

Can you reclaim VAT on business expenses?

A VAT-registered business can normally reclaim VAT on qualifying business expenditure that relates to its taxable activities, provided it has appropriate evidence and the normal input VAT conditions are met.

Recovery can be restricted where:

• The expenditure is for personal rather than business use.
• The cost relates to VAT-exempt supplies.
• The business is partly exempt.
• The VAT is specifically blocked under the rules.
• There is no valid supporting VAT evidence.

Clean bookkeeping makes this much easier. Our Bookkeeping service helps businesses maintain VAT-ready sales, purchase and bank records throughout the year rather than trying to reconstruct transactions at filing time.

Common VAT rate mistakes

• Treating zero-rated and exempt sales as the same thing.
• Ignoring zero-rated turnover when monitoring the registration threshold.
• Applying 5% VAT without checking whether the statutory conditions are met.
• Automatically charging 20% on every product or service.
• Using the £90,000 domestic threshold for an overseas business without checking the non-established rules.
• Failing to keep evidence supporting zero-rating of exports.
• Reclaiming all input VAT where the business makes exempt supplies.
• Setting incorrect VAT tax codes in accounting or ecommerce software.
• Posting marketplace payouts without separating sales, VAT, fees and refunds.
• Failing to update VAT records when the nature of a supply changes.

How to decide which VAT rate applies

Start by identifying exactly what you are supplying rather than looking only at the customer or invoice description. Then check whether there is a specific VAT provision that changes the normal standard-rate treatment.

A practical review should consider:

1. What exactly is being supplied?
2. Where is the supply treated as taking place?
3. Is it standard-rated, reduced-rated or zero-rated?
4. Does an exemption apply?
5. Is the transaction outside the scope of UK VAT?
6. Are any special schemes involved?
7. Is supporting evidence required?
8. How should the transaction be coded in the accounting system?

If the answer is unclear, it is better to check before invoicing customers than to correct months of VAT returns later.

How Accusolve Accountants can help with VAT

Accusolve Accountants supports UK businesses, London SMEs, startups, ecommerce sellers and overseas owners with VAT registration, VAT returns, MTD bookkeeping and practical VAT compliance. We are AAT AML supervised and provide accounting and tax support without describing ourselves as chartered accountants.

We can help you:

• Review whether you need to register for VAT.
• Identify the correct VAT treatment for your business activities.
• Register UK and overseas-owned businesses for VAT where required.
• Prepare and submit MTD-compatible VAT returns.
• Configure VAT codes in Xero, QuickBooks and other cloud accounting systems.
• Reconcile ecommerce marketplaces and payment processors.
• Review zero-rated, exempt and partially exempt activity.
• Correct VAT errors and improve record-keeping processes.

Visit our Tax Services page for broader business tax support, or contact Accusolve Accountants if you need help checking your VAT position.

Sources and research notes

• GOV.UK — VAT rates: confirms the standard rate of 20%, reduced rate of 5% and zero rate of 0%.
• HM Treasury / GOV.UK — 2026/27 rates and allowances: confirms VAT rates remain 20%, 5% and 0%, the VAT registration threshold remains £90,000 and the deregistration threshold remains £88,000 from April 2026.
• GOV.UK — Exemption and partial exemption from VAT: confirms that exempt supplies differ from zero-rated taxable supplies and explains restrictions on recovering input VAT relating to exempt activity.
• GOV.UK — VAT guide (Notice 700): used for taxable supplies, output tax, input tax and zero-rated supply principles.
• GOV.UK — VAT rates on different goods and services: used to confirm that VAT treatment depends on the precise nature and circumstances of the supply.
• GOV.UK — Making Tax Digital for VAT: confirms that VAT-registered businesses must generally keep digital VAT records and submit VAT returns using compatible software unless exempt.
• GOV.UK — Keeping VAT records: used for the digital record-keeping requirements.

FAQs: UK VAT Rates 2026/27

What is the standard VAT rate in the UK for 2026/27?

The standard UK VAT rate remains 20% for 2026/27. It applies to most taxable goods and services unless they qualify for the reduced rate, zero rate, exemption or another specific VAT treatment.

What is the reduced VAT rate in the UK?

The reduced VAT rate is 5%. It applies only to specific qualifying goods and services where the relevant VAT conditions are satisfied.

What is the difference between zero-rated and VAT exempt?

A zero-rated supply is still taxable for VAT, but the rate charged is 0%. An exempt supply is not a taxable supply. This distinction is important because VAT relating to zero-rated taxable activity can normally be reclaimed, while VAT relating to exempt activity may be restricted.

What is the UK VAT registration threshold for 2026/27?

The compulsory VAT registration threshold for UK-established businesses remains £90,000 of taxable turnover. The VAT deregistration threshold remains £88,000.

Do zero-rated sales count towards the VAT threshold?

Yes. Zero-rated sales are taxable supplies, so they normally form part of taxable turnover for VAT registration purposes even though the VAT rate charged is 0%.

Can I reclaim VAT if my sales are zero-rated?

A VAT-registered business making zero-rated taxable supplies can normally reclaim relevant input VAT, subject to the usual rules and supporting evidence.

Do overseas businesses get the £90,000 VAT threshold?

Non-established businesses can be subject to different VAT registration rules and should not automatically assume that the £90,000 domestic threshold applies. Overseas sellers making taxable UK supplies should check their position before trading.

Do VAT-registered businesses have to use Making Tax Digital?

VAT-registered businesses are generally required to keep the required VAT records digitally and submit VAT returns through compatible Making Tax Digital software unless HMRC has granted an exemption.

Related Guides

• VAT Registration
• UK VAT Registration for Non-Residents
• VAT Returns
• Bookkeeping
• Accounting Software Setup
• Ecommerce Accounting UK
• Tax Services
• Contact Accusolve Accountants