UK VAT Guide 2025-26: 20%, 5%, 0% Rates — Add & Remove VAT Correctly

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.

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What's the difference between zero-rated and exempt from VAT?

Both mean the customer pays no VAT. The difference matters for businesses: zero-rated businesses can reclaim input VAT on their purchases. Exempt businesses cannot — making VAT on their inputs a real cost. A VAT-registered bakery selling zero-rated bread can reclaim VAT on its flour; an insurance company (exempt) cannot reclaim VAT on its office costs.

Does VAT apply to postage and delivery?

Royal Mail postage stamps are exempt from VAT. However, delivery charges from courier services and online retailers are generally subject to the same VAT rate as the goods being delivered. If a retailer sells zero-rated goods, the delivery is also zero-rated.

Can I reclaim VAT as an individual?

Generally no — VAT reclaim is for VAT-registered businesses. The exception is the VAT Retail Export Scheme, which used to let non-EU visitors reclaim VAT on UK purchases. This scheme was abolished in 2021 for Great Britain (Northern Ireland has different rules under the Windsor Framework). There are some VAT refund schemes for disabled people on certain medical goods.