UK VAT Guide

Value Added Tax is a consumption tax levied on most goods and services supplied in the UK. Businesses with taxable turnover above the registration threshold must register for VAT, charge VAT on their supplies, and account for it to HM Revenue & Customs. VAT is one of the largest sources of government revenue and affects nearly every business transaction.

VAT Rates

The UK currently applies four broad categories of VAT treatment. The standard rate of 20% applies to most goods and services, from electronics to professional services. A reduced rate of 5% applies to selected items such as domestic fuel and power, children's car seats, and sanitary products. The zero rate (0%) covers essentials including most food, books and newspapers, children's clothing, public transport, and prescription medicines. Exempt supplies — such as insurance, education, healthcare, and certain postal services — fall outside the VAT system entirely; businesses making only exempt supplies cannot register for VAT or recover input tax.

Partial Exemption

Businesses that make both taxable and exempt supplies must use partial exemption rules to determine how much input VAT they can recover. The standard method apportions input tax based on the value of taxable supplies as a proportion of total supplies. HMRC may approve a special method if the standard method produces an unfair result. The de minimis rules allow full recovery if exempt input tax is below £625 per month and less than half of all input tax.

Registration Threshold

The VAT registration threshold is currently £90,000 of taxable turnover in a rolling 12-month period. Once turnover exceeds this figure, you must register with HMRC within 30 days. The registration is effective from the first day of the month following the month in which the threshold was exceeded (or an earlier date if agreed). Businesses with turnover below £90,000 may register voluntarily — this can be advantageous for reclaiming input VAT on business expenses.

De-registration

If your taxable turnover falls below the de-registration threshold of £88,000, you can apply to cancel your VAT registration. You must notify HMRC within 30 days. Upon de-registration, you must account for VAT on any business assets held on which input tax was claimed (the "VAT on stock and assets" adjustment). HMRC may also cancel your registration if you cease to make taxable supplies or if your returns suggest you are no longer trading.

VAT Periods

Most businesses submit VAT returns quarterly, with returns due one calendar month and seven days after the period end. Some businesses opt for monthly returns (common for repayment traders) or annual returns under the Annual Accounting Scheme. Returns must be filed digitally using Making Tax Digital compatible software, and payments are due by the same deadline as the return.