What Are the Different VAT Rates?

When you're VAT-registered, understanding which rate to charge on your sales is essential for staying compliant. In the UK, there are four main VAT categories: standard rate (20%), reduced rate (5%), zero rate (0%), and exempt supplies. The rate you apply depends on what you sell or provide.

The Standard Rate: 20%

The standard rate is 20% and applies to most goods and services you supply. This is the default rate you'll charge unless your specific products or services fall into one of the other categories.

The standard rate has been 20% since 4 January 2011, when it increased from 17.5%.

Examples of standard-rated items include:

• Alcoholic drinks
• Confectionery
• Crisps and savoury snacks
• Hot food and hot takeaways
• Ice cream
• Soft drinks and mineral water
• Sports drinks
• Pet food (when packaged as pet food)

For restaurants and takeaways, you must charge the standard 20% rate on everything your customers eat on your premises or in designated communal areas (such as shared tables in shopping centres or airport food courts). You must also charge standard rate VAT on all hot takeaways and home deliveries.

The Reduced Rate: 5%

The reduced rate is 5% and applies to a limited range of goods and services.

Examples include:

• Children's car seats
• Home energy
• Energy-saving materials permanently installed in dwellings and buildings used for relevant residential purposes (but only if the total cost of materials, excluding VAT, is not more than 60% of the total installation cost, excluding VAT)

The reduced rate can only be applied when specific conditions are met. The exact requirements depend on factors such as who is buying or selling, where the supply takes place, how items are presented for sale, and whether you obtain the necessary evidence and keep the right records.

The Zero Rate: 0%

Zero-rated supplies are taxable, which means they count towards your VAT registration threshold and you can reclaim VAT on related costs. However, you charge 0% VAT on these sales.

Common zero-rated items include:

• Most food and drink for human consumption (but not the items listed under standard rate above)
• Children's clothes
• Certain animals, animal feed, plants and seeds (when specific conditions are met)
• Goods exported outside the UK (subject to conditions)
• Advertising services supplied to charities
• Goods sold by charity shops (when they're donated goods)
• Construction and sale of new buildings for relevant charitable purposes
• Certain goods sold at charitable fundraising events

The zero rate for food and drink has several important exceptions. Cold takeaway food is zero-rated unless it's eaten in a designated customer area. However, catering, hot food, and food eaten on restaurant premises is standard-rated.

Exempt Supplies

Exempt supplies are different from zero-rated supplies. If you only make exempt supplies, you cannot register for VAT. You also cannot reclaim VAT on costs related to exempt supplies.

Examples of exempt supplies include:

• Postage stamps
• Financial transactions
• Property transactions
• Physical education and sports activities
• Betting and gaming (including pool betting and games of chance)
• Bingo (including remote games played online, by telephone, television or radio)
• Lottery ticket sales and online lottery games
• Retailer commission on lottery ticket sales
• Admission charges by public authorities or eligible cultural bodies to cultural events (such as museums, art exhibitions, zoos and performances)
• Admission charges by charities
• Charitable fundraising events
• Sponsored charitable events
• Antiques, works of art or similar items from historic houses sold by private treaty to public collections or used to settle tax or estate duty debts with HMRC

Items Outside the Scope of VAT

Some items fall completely outside the UK VAT system. These are not taxable supplies at all. For example, voluntary donations to charity are outside the scope of VAT.

Conditions and Special Circumstances

The VAT rate you charge often depends on meeting specific conditions. These may include:

• Who is providing or buying the goods or services
• Where they're provided
• How they're presented for sale
• The precise nature of what you're supplying
• Whether you obtain necessary evidence
• Whether you keep the right records
• Whether they're provided alongside other goods and services

Certain trades also have specific VAT rules that affect how you account for VAT, how much you must pay, and how much you can reclaim. If you work in construction or run a charity, additional rules may apply to your situation.

Finding the Right Rate

This overview covers the main VAT rates and common examples, but it's not exhaustive. If you're unsure which rate applies to your particular goods or services, you can check the full list of VAT notices on GOV.UK, which provide detailed guidance for specific industries and products.

Sources

• VAT rates
• VAT rates on different goods and services

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.