UK VAT Rates Explained: Standard, Reduced, and Zero-Rated

The Three VAT Rates You Need to Know

As of 2026, the UK has three VAT rates. Charge the wrong one and you're breaking the law. Your customers lose their ability to reclaim VAT, and HMRC will chase you for penalties. Getting this right is non-negotiable.

Standard Rate: 20%

This applies to most goods and services in the UK. If you're in doubt about an item's VAT rate, assume 20%. Examples include:

• Professional services (consulting, accounting, legal advice)
• Clothing and footwear (all items)
• Electrical goods (TVs, phones, computers)
• Furniture and household items
• Restaurant meals and takeaway food
• Petrol and diesel
• Accommodation (hotels, B&Bs)
• Entertainment (cinema, concerts, gym memberships)

Reduced Rate: 5%

Only applies to specific items. The most common are:

• Domestic fuel and power — Gas, electricity, heating oil for homes (5% since 2022, previously 20%)
• Mobility aids for disabled people — Wheelchairs, mobility scooters, certain medical equipment
• Energy-saving materials — Solar panels, insulation, heat pumps (though this sometimes changes)
• Renovations and alterations — But only in certain circumstances (mainly residential properties that have been empty for 2+ years)
• Smoking cessation products — Nicotine patches, gum
• Children's car seats — Booster seats and safety harnesses only, not the seat itself

Zero Rate: 0%

Zero-rated items mean no VAT is charged, but businesses can still reclaim VAT on their costs. This is why zero-rating is politically contentious (it supports certain industries). Zero-rated items include:

• Food — Most food is zero-rated (bread, milk, fruits, vegetables, meat)
• Except — Hot takeaway food, chocolate biscuits, alcoholic drinks, confectionery
• Books and newspapers — Physical books, e-books, newspapers
• Children's clothing — Up to UK size 12-13 for children
• Public passenger transport — Bus fares, train tickets, ferry services
• Water and sewerage — Residential supply only
• Medicines — Prescription medicines, certain OTC medicines

Exempt vs Zero-Rated (Common Confusion)

These are NOT the same, and the difference costs money.

Aspect	Zero-Rated (0%)	Exempt
VAT charged to customer	0%	No VAT (implied 0%)
Can reclaim VAT on costs?	YES — you can claim back VAT you've paid	NO — you cannot reclaim VAT you've paid
Example	Selling a book (you can reclaim VAT on printing costs)	Running a childcare nursery (you can't reclaim VAT on nappies, toys)

This matters hugely. A zero-rated business can reduce costs by reclaiming VAT. An exempt business cannot.

What's Exempt from VAT?

Some services and goods are completely VAT-exempt. No VAT charged, and you can't reclaim VAT on your costs. Examples:

• Insurance
• Financial services (banking, investments)
• Education (schools, universities, registered training)
• Healthcare (NHS, private doctors and dentists, but NOT cosmetic surgery)
• Postal services (Royal Mail)
• Passenger transport (but some exceptions)
• Gambling and lottery tickets
• Land and property (mostly — with exceptions)

Real-World Examples: Which Rate Applies?

Example 1: Electrician's Invoice

An electrician charges £1,000 to rewire a residential property. This is a professional service, so it's 20% VAT. Invoice shows:

• Labour: £1,000
• VAT @ 20%: £200
• Total: £1,200

Example 2: Online Tuition

A tutor charges £40 per hour for GCSE maths lessons. Is this education? Generally YES — tuition is zero-rated if it's accredited education. So:

• 5 hours @ £40: £200
• VAT @ 0%: £0
• Total: £200

But — if the tutor is selling "confidence coaching" (not formal education), it becomes standard-rated 20%. The tax authority pays attention to how it's described.

Example 3: Selling Fuel to a Business

Selling heating oil to a warehouse. If it's for industrial use, 20% VAT. If it's for a residential property, 5% VAT (domestic fuel). The customer's business type determines the rate.

How to Check If You're Using the Right Rate

Use the official HMRC VAT rates tool on gov.uk. It's searchable and updated whenever rules change. Better to spend 2 minutes checking than to invoice wrong and have to issue a credit note.

What If HMRC Finds You Charged Wrong VAT?

They'll contact you and ask you to issue corrected invoices and credit notes. If it's systematic (you consistently undercharged), they may demand back VAT, plus interest and penalties. If it's one-off mistakes, they're usually more lenient if you correct them promptly.

Apply the Right VAT Rate Instantly

InvoiceForged lets you choose the correct rate (20%, 5%, or 0%) for each line item. No more mental calculations. Just select the rate and we handle the maths. Create your first invoice free — 3 per week, no credit card.

FAQ

Does VAT change on budget day?

Sometimes. The government can change VAT rates with a budget announcement. Keep an eye on HMRC updates if you're near a budget.

Can I charge different VAT rates on one invoice?

Yes. If you sell goods at 20% and zero-rated food on the same invoice, show them separately with their respective rates.

What if I'm not sure if something is zero-rated?

Ask HMRC directly on 0300 322 9104. Better to ask than to guess and face a penalty.

Does reduced rate 5% apply to services or just goods?

Mostly goods. Services almost always fall under standard 20%, with very few exceptions.