UK VAT rates guide (2026/27)

1. Overview

Value Added Tax has been part of the UK tax system since 1 April 1973, replacing Purchase Tax on accession to the European Economic Community. The architecture of the tax has remained broadly stable across five decades: a standard rate that applies to most goods and services, a reduced rate for limited social categories such as domestic fuel, a zero rate for essentials such as food and books, and an exempt category for financial and educational supplies that are taken out of the system entirely. The standard rate has moved between 8% (introduction) and 20% (current rate since 4 January 2011), with intermediate periods at 15% (December 2008 to December 2009 emergency cut) and 17.5% (1991 to 2010 with brief variations).

Brexit reset the UK's room to manoeuvre on VAT rates. EU member states are bound by the VAT Directive, which constrains them to a list of permitted reduced and zero rates. Since 1 January 2021 the UK has been able to set rates independently. The first major use of that freedom was the zero-rate on sanitary products (January 2021); the second was the temporary zero-rate on energy-saving materials (April 2022); the third was the imposition of VAT on private school fees (January 2025).

The five categories every UK business needs to understand are:

• Standard rate (20%) - the default rate that applies to any taxable supply not specifically reduced, zeroed or exempted.
• Reduced rate (5%) - domestic fuel and power, energy-saving materials (after the temporary 0% ends), children's car seats, mobility aids for the elderly, and a handful of other socially-targeted categories.
• Zero rate (0%) - taxable supplies on which the rate is set to zero. Includes most food, books and newspapers (physical and digital), public transport, prescription drugs, children's clothing and footwear, exports outside the UK.
• Exempt - supplies outside the scope of VAT charging. Financial services, insurance, regulated education, healthcare, betting and gaming, postage stamps, burial and cremation.
• Outside the scope of VAT - employment wages, dividends, statutory fines, most grant income, transfers of going concerns - never inside the VAT calculation.

2. The standard rate (20%)

The standard rate of 20% applies to any taxable supply that is not specifically listed in one of the lower rate or exempt schedules of the Value Added Tax Act 1994. Because the lower rate and exempt lists are closed (set out in Schedules 7A, 8 and 9 of VATA 1994), the standard rate is the default residual category. If you cannot find a specific provision moving a supply to a lower rate or exempt status, the standard rate applies.

Examples of the kinds of supplies that fall under the standard rate include:

• Clothing and footwear for adults, jewellery, watches, perfume, cosmetics, electronic accessories.
• Furniture, kitchen appliances, white goods, consumer electronics, mobile phones, computer hardware.
• Restaurant meals, catering, hot takeaway food, alcohol, soft drinks, confectionery and crisps.
• Hotel accommodation, holiday parks, short-term lettings, serviced apartments.
• Petrol and diesel for road vehicles, motor servicing, MOTs (when not by a separately-regulated tester), parts, accessories.
• Most professional services: accountancy, legal, architectural, marketing, IT consulting, management consulting, recruitment.
• Repair services, cleaning services, gardening services, beauty treatments, hairdressing.
• Standalone software, music downloads, video streaming subscriptions, gaming subscriptions, app store purchases.
• Domestic appliances installed in commercial premises, business utility supplies above the de minimis thresholds.
• Construction services on new commercial buildings, on alterations to listed buildings (see Section 11), and most repair and maintenance work.
• Tickets to most sporting events, theme parks, exhibitions, conferences, training courses that are not regulated education.

The standard rate has been 20% since 4 January 2011. Before that it ran at 17.5% for most of the period since 1991, with a brief reduction to 15% from 1 December 2008 to 31 December 2009 as part of the post-financial-crisis stimulus package. The previous Labour government raised it back to 17.5% on 1 January 2010 and the Coalition raised it to 20% twelve months later in the emergency Budget that followed the May 2010 election. There has been no rate change in the 15 years since, although the temporary hospitality reduced rate of 5% during the COVID period (July 2020 to September 2021, then 12.5% to March 2022) operated outside the headline rate structure.

The 20% rate is now in line with the EU average (the 27 member states currently average 21.5% as their standard rate). It is below the highest EU rate (Hungary 27%) and well above the lowest (Luxembourg 17%). Within the UK economy the standard rate generates the majority of VAT revenue - over £150 billion a year in 2024/25 according to OBR data - making VAT the third-largest source of government revenue after Income Tax and National Insurance contributions.

3. The reduced rate (5%) and temporary 0% energy-saving materials

The reduced rate of 5% applies to a narrow list of socially or environmentally targeted supplies. The full reduced-rate schedule is in Schedule 7A of VATA 1994. The main reduced-rate categories in force for 2026/27 are:

• Domestic fuel and power - electricity, gas, oil and solid fuel supplied to a domestic dwelling or to a charitable building used for non-business activity. The 5% rate covers the supply itself, the standing charges, the connection charge, and meter rental.
• Energy-saving materials installed in residential accommodation - currently at 0% temporary rate to 31 March 2027, then reverting to 5% from 1 April 2027. Covers insulation (loft, wall, floor), draught stripping, hot water and central heating controls, solar panels (PV and thermal), wind and water turbines, ground source and air source heat pumps, micro CHP units, wood-fuelled boilers, smart diverters, battery storage.
• Mobility aids for the elderly - grab rails, ramps, stair lifts, bath lifts, built-in shower seats, and similar physical adaptations to a private home, for a person aged 60 or over.
• Children's car seats and booster seats - all child car seats and booster cushions designed for children. Adult booster seats are standard-rated.
• Smoking cessation products - nicotine patches, gum, lozenges and other licensed smoking cessation supplies.
• Maternity pads and womens sanitary products - moved from 5% to 0% on 1 January 2021 as the tampon tax was abolished, so are no longer at the reduced rate.
• Contraceptive products - including condoms when sold over the counter (NHS-prescribed contraceptives are zero-rated under prescription drugs).
• Residential conversions - the conversion of a non-residential building into a dwelling, or the conversion of one type of dwelling into another (e.g. a single house into multiple flats). The 5% rate applies to the construction services and most materials.
• Renovations of empty residential properties - renovation services on a dwelling that has not been lived in for at least two years.

Energy-saving materials at temporary 0%. The most significant reduced-rate change in the past four years has been the energy-saving materials regime. From 1 April 2022 the installation of qualifying energy-saving materials in residential accommodation has been zero-rated rather than reduced-rated, as part of the government's response to the cost of living crisis and net-zero policy goals. The scope was extended on 1 February 2024 to cover additional materials including battery storage, smart diverters and water-source heat pumps. The temporary 0% rate is currently legislated to end on 31 March 2027, after which the supplies revert to the 5% reduced rate.

The qualifying conditions for the 0% rate are detailed in VAT Notice 708/6. In summary the supply must be an installation service that includes the materials themselves; a pure supply of materials without installation is standard-rated at 20%. The property being improved must be residential accommodation (private home, residential care home, student accommodation, armed forces accommodation) - commercial installations remain at 20%. The installer must be the same person supplying the materials, so a builder buying solar panels and installing them qualifies but a homeowner buying panels and arranging separate installation does not get the 0% on the panels.

Listed buildings. Approved alterations to protected listed buildings used as residential dwellings were zero-rated from VAT introduction in 1973 until 1 October 2012, when the relief was abolished. From that date alterations to listed dwellings are standard-rated at 20% in the same way as alterations to ordinary dwellings. The change was announced at the 2012 Budget and produced one of that year's biggest VAT-driven controversies; the listed-buildings community campaigned heavily against it without success. Repairs and maintenance to listed buildings were already standard-rated before 2012, so the abolition only affected works that qualified as "approved alterations" requiring listed building consent.

Domestic fuel de minimis. Small commercial consumption of fuel and power can also qualify for the 5% reduced rate if it is below the de minimis thresholds - 1,000 kWh per month for electricity and 4,397 kWh per month for gas. The threshold is intended to catch home offices and small workshops where business use of utilities is not separately meterable. Above the threshold the commercial use is standard-rated at 20% and the supplier should issue separate invoices or apportion the consumption.

4. Zero rate categories

Zero rate is a quirk of the UK VAT system that the EU framework treats as a derogation. Zero-rated supplies are taxable supplies at the rate of 0%, which means that a business making zero-rated supplies can register for VAT and reclaim input VAT on its costs - the same as a business making standard-rated supplies. The economic effect is that zero-rated industries get free input-VAT recovery at the customer's expense (HMRC pays out the input VAT through the refund mechanism). Schedule 8 of VATA 1994 sets out the full list. The main zero-rated categories are:

Food and drink (with major exceptions). Most food sold for human consumption is zero-rated when sold by a shop for home consumption. The notable standard-rated exceptions are: catering and hot takeaway food, food consumed on the premises (the restaurant or cafe test), ice cream, confectionery (including biscuits coated in chocolate), alcoholic drinks, soft drinks, sports drinks, crisps and savoury snacks, pet food, food for animal feed (unless agricultural feed in bulk). HMRC VAT Notice 701/14 contains pages of guidance on borderline cases. Tribunal cases have decided the rate for Jaffa Cakes (cakes, zero-rated), Pringles (savoury snack, standard-rated), Sandwich thins (sandwiches not biscuits, zero-rated), Marshmallow biscuit "S'mores" (confectionery, standard-rated).

Books, newspapers, magazines, journals, e-books and audiobooks. Physical books, newspapers, magazines and academic journals have been zero-rated since 1973. From 1 May 2020, electronic versions of the same content (e-books, e-newspapers, e-magazines, audiobooks) were brought into the zero-rate. The change was announced at the 2020 Budget as a planned reform but was accelerated to coincide with the COVID-19 lockdown when sales of digital reading material surged. The qualifying test is that the publication must be predominantly text-based; predominantly video, audio (other than audiobooks), or interactive content is excluded. Sheet music in physical or digital form is also zero-rated.

Public transport. Passenger transport in vehicles, ships or aircraft designed or adapted to carry at least 10 passengers is zero-rated. The threshold of 10 passengers is what catches buses, coaches, trains, ferries and commercial flights inside the zero rate, and excludes taxis and private hire vehicles (under 10 passenger capacity, therefore standard-rated at 20%). Cable cars, funiculars and similar vehicles also qualify if they meet the capacity test. Cycle rickshaws and similar small vehicles are standard-rated.

Prescription drugs and medicines. Drugs and medicines dispensed by a registered pharmacist on a doctor's, dentist's or other authorised practitioner's prescription are zero-rated. Over-the-counter medicines bought without a prescription are standard-rated at 20%. The distinction is the prescription itself rather than the medicine: the same paracetamol product is zero-rated if dispensed on prescription and standard-rated if bought off the shelf.

Children's clothing and footwear. Clothing and footwear designed for young children (broadly, up to age 14, with detailed size-based tests in VAT Notice 714) is zero-rated. The size-based tests are what cause complaints: a "small adult" who buys children's clothing pays no VAT, while a "tall child" pays VAT on what is sold as adult clothing despite being a younger wearer. Hard-wearing safety boots, motorcycle helmets and bicycle helmets are also zero-rated regardless of age.

Motorcycle and bicycle helmets. Protective helmets that meet specified safety standards (BSI kitemark or equivalent) are zero-rated, recognising the public-safety value of helmet use. Standard-rated helmets exist where the safety standard is not met (novelty or ornamental helmets).

Domestic water and sewerage. The supply of water and sewerage services to residential premises is zero-rated. Supplies to commercial or industrial customers are standard-rated. The distinction is the use of the water rather than the customer's status - a residential landlord supplying water to tenants gets the supply at zero rate; a commercial landlord taking water for an office gets it at the standard rate.

Exports outside the UK. Goods supplied to destinations outside the UK are zero-rated, with proof of export such as commercial transport documents, customs declarations or EORI-tracked records. The change from EU intra-community acquisitions to a unified export regime took effect on 1 January 2021. Services supplied outside the UK are usually outside the scope of UK VAT under the place-of-supply rules (see Section 10).

Sanitary protection products. Womens sanitary products including tampons, pads and reusable products were moved from the reduced 5% rate to zero rate on 1 January 2021, part of the post-Brexit suite of VAT changes that were not possible under EU rules.

New residential construction. The construction of new dwellings, the construction of new buildings for relevant charitable purpose and new buildings for residential institutions such as care homes is zero-rated. The first sale or long lease of a new dwelling is also zero-rated. Subsequent sales of the same property are exempt from VAT (see Section 6). The zero-rate on new construction is one of the largest single VAT reliefs by value, worth several billion pounds per year.

Charity-specific zero rates. Several supplies to or by charities are zero-rated: charity advertising, the sale of donated goods by a charity shop, medical and scientific equipment supplied to relevant institutions, lifeboats and lifeboat equipment, talking books for the blind, aids for the handicapped. These are narrow categorical reliefs requiring careful application of the conditions in Schedule 8.

5. Exempt vs zero-rated: the crucial distinction

The single most important conceptual distinction in UK VAT is between zero-rated supplies and exempt supplies. On the customer-facing side they look identical: in both cases no VAT is added to the price the customer pays. The difference is on the supplier side, where it determines whether the business can recover input VAT on its own costs.

Zero-rated supplies are taxable. They sit inside the VAT system. The rate of VAT is set at 0% by legislation. The supplier registers for VAT (or can voluntarily register if below the threshold), issues VAT invoices showing VAT at zero, files VAT returns, and recovers input VAT on its costs in full in the normal way. A bookseller buying shelving, computers, packaging, premises rent and professional services can reclaim the 20% VAT on every one of those costs even though the books it sells carry 0% output VAT. The net effect is that HMRC pays the bookseller money each quarter.

Exempt supplies are outside the VAT charging system. They sit alongside the VAT system. No output VAT is charged because the supply is not subject to VAT, but no input VAT can be recovered on costs that relate to making the exempt supply. A private dental practice buying chairs, X-ray machines, dental software and professional indemnity cannot reclaim the 20% VAT on those costs - the irrecoverable VAT becomes part of the practice's operating cost base. A VAT-registered dental practice would only register because of a mixed-supply business (e.g. selling taxable toothbrushes alongside exempt clinical services); the registration would enable some partial recovery on the taxable side.

The economic effect. Zero rate is a subsidy from HMRC to the supplier - the input VAT refunds are real cash paid by the government to keep the production chain free of VAT. Exempt status is the opposite: HMRC collects VAT throughout the production chain from the exempt business's suppliers, and the exempt business cannot recover it. Exempt status is more expensive for the supplier than zero rate, because the exempt supplier bears the embedded VAT in its supply chain.

Why some supplies are exempt rather than zero. Historically the exempt list was determined by the EU VAT Directive, which restricted member states' ability to zero-rate supplies beyond the categories specifically allowed. Many categories that the UK might have preferred to zero-rate were put on the exempt list instead - financial services, education, healthcare. Post-Brexit the UK could in principle move some exempt categories to zero rate, but the cost would be very large (zero-rating financial services would cost HMRC tens of billions a year in refunds to the financial sector) and the political will has not been there.

Mixed supplies. A business that makes both taxable (standard, reduced or zero rated) and exempt supplies is partially exempt - see Section 7. Input VAT on costs that relate wholly to taxable supplies is recoverable. Input VAT on costs that relate wholly to exempt supplies is not recoverable. Input VAT on overheads relating to both is apportioned using the standard method, usually a turnover-based ratio.

Out-of-scope supplies are a third bucket. Some supplies are not just zero-rated or exempt - they are outside the VAT system entirely. Employment wages paid by an employer to an employee are not a supply for VAT purposes. Dividends paid by a company to a shareholder are not a supply. Statutory fines are not a supply. Most grants are not a supply because no consideration moves in return. These items never appear on a VAT return at all and do not affect partial exemption calculations.

6. The exempt categories in full

Schedule 9 of VATA 1994 sets out the exempt categories. The main groups in force for 2026/27 are:

Financial services. The provision of credit, the operation of a current account, the making of loans, the provision of mortgages, the issue or transfer of securities, foreign exchange transactions, the management of authorised investment funds and similar arrangements. The exemption covers the financial intermediation itself - the underlying advisory and consultancy services around finance remain standard-rated. The distinction is important: a mortgage broker arranging the loan is providing exempt mortgage intermediation; a financial adviser preparing a recommendation report is providing standard-rated advice; an accountant doing the tax planning is providing standard-rated services. VAT Notice 701/49 covers financial services in detail.

Insurance. The provision of insurance and reinsurance, together with closely related broking and agency services performed by an insurance broker or agent. The exemption covers the policy itself - Insurance Premium Tax (IPT) is a separate tax at 12% standard and 20% higher rate that applies to most general insurance premiums in lieu of VAT. Life insurance, pension contracts and reinsurance are all on the exempt VAT list and outside the scope of IPT.

Education and vocational training. Education and vocational training supplied by an eligible body - schools (state and most independent until 1 January 2025), universities, sixth-form colleges, further education colleges, charities providing regulated education, government-approved training providers. Private tuition by a sole trader in a subject normally taught in an educational institution is also exempt (provided by the individual personally). Note that from 1 January 2025 the education exemption no longer applies to private school fees - see Section 8.

Healthcare and medical services. Medical, surgical and dental services provided by a registered health professional in the exercise of their profession, when supplied for the protection, maintenance or restoration of the patient's health. The exemption is wide - it covers consultations, treatments, diagnostic tests, vaccinations and similar clinical services by doctors, dentists, nurses, midwives, pharmacists, physiotherapists, osteopaths, chiropractors, optometrists, podiatrists, psychologists, paramedics and others on the statutory professional registers. The exemption does not extend to medical reports prepared for legal proceedings, occupational health services bought by employers (a complex partial exemption), aesthetic and cosmetic procedures without medical necessity, and treatments by unregistered alternative practitioners.

Welfare services. The provision of welfare services by a charity, public body or state-regulated private welfare institution. Includes care of the elderly, sick or disabled, care for children and young people, drug and alcohol rehabilitation, and similar social-care services. Most domiciliary care, care home services and supported living are exempt under this heading.

Postal services. The conveyance of letters by the universal service provider Royal Mail Group plc when operating within its universal service obligation. Parcel services, courier services and Royal Mail products outside the universal service obligation are standard-rated at 20%. The exemption is narrow and based on the public-service nature of the universal postal obligation.

Betting, gaming and lotteries. The taking of bets, the playing of games of chance, the provision of lottery tickets and similar gambling activities. Most casino, bingo and online betting is exempt, with the gambling tax regime (Remote Gaming Duty, General Betting Duty, Pool Betting Duty) operating separately. The exemption does not extend to admission fees to a casino building or to non-gambling sales such as food and drink at gambling venues.

Burial and cremation. The provision of burial and cremation services, the supply of coffins and the provision of funeral services by undertakers. Memorial masonry, headstones and similar permanent memorials are standard-rated.

Subscriptions to qualifying bodies. Subscriptions paid to trade unions, professional associations and learned societies that exist to advance their members' knowledge or maintain their professional standards. The qualifying body conditions are detailed in VAT Notice 701/5. Subscriptions to fishing clubs, sports clubs and similar recreational bodies are usually standard-rated.

Sale or lease of land and buildings. Sales of bare land, sales of commercial buildings more than three years old, and most leases of land and buildings are exempt by default. The exemption can be overridden by the property owner electing to opt to tax the property, which converts the supplies to standard-rated and unlocks input VAT recovery on associated costs. The option to tax decision is one of the most consequential VAT choices a commercial property owner makes; once made it generally cannot be revoked for 20 years.

Fundraising events by charities. Income from one-off fundraising events run by a charity or qualifying body where the primary purpose of the event is to raise funds. The exemption covers admission charges, sponsorship and goods/services sold at the event. Annual fundraising calendars are limited to 15 events of the same type per year per organisation; above that, all events lose the exemption.

7. Partial exemption rules

Any business that makes a mixture of taxable and exempt supplies is partially exempt. The partial exemption framework determines how much of the business's input VAT is recoverable. The rules are in the Value Added Tax Regulations 1995 (regulations 99 to 111) and explained in VAT Notice 706.

The three categories of input VAT. For each cost the business incurs, input VAT is categorised as:

• Directly attributable to taxable supplies - 100% recoverable. Examples: stock for a taxable retail line, equipment used only for the taxable arm.
• Directly attributable to exempt supplies - 0% recoverable. Examples: dental software used only in the clinical practice, mortgage broker's CRM used only for the exempt brokerage.
• Residual (general overheads) - partly recoverable, by reference to the proportion of taxable to total supplies. Examples: premises rent for a building used for both arms, head office accountancy, general IT.

The standard method. The default apportionment for residual input VAT is a turnover-based ratio: taxable turnover divided by total turnover (taxable plus exempt), excluding capital sales and incidental financial supplies. The ratio is rounded up to the next whole percentage point in the business's favour (so 78.4% rounds to 79%). The recoverable proportion is applied to residual input VAT each VAT period, with an annual adjustment at the end of the business's tax year to true up to the full-year ratio.

De minimis. If the irrecoverable input VAT (the sum of input VAT attributable to exempt supplies plus the irrecoverable portion of residual VAT) is below both £625 per month on average and 50% of total input VAT, the business can treat all input VAT as recoverable. The simplification is valuable for businesses with small incidental exempt income (e.g. a retailer with a small commission-only insurance sideline). It is checked at the partial exemption year end and can flip a previously simplified business into formal partial exemption if exempt income grows.

Special methods. Where the standard method does not give a fair and reasonable result, the business can apply to HMRC for a special partial exemption method tailored to its business. Common special methods include headcount-based apportionment (suitable for professional firms with mixed billing), floor-area apportionment (suitable for retailers with separable taxable and exempt zones), and transaction-count apportionment (suitable for banks with high volumes of small transactions). The special method requires HMRC approval and is documented in a written method statement.

8. VAT on private school fees (from 1 January 2025)

The Labour government's October 2024 Autumn Budget removed the VAT exemption for private school fees from 1 January 2025. The change was one of the manifesto commitments made before the July 2024 general election and was implemented with little transition time. From 1 January 2025 supplies of education and boarding services by private schools are subject to VAT at the standard 20% rate.

What is in scope. The standard rate applies to fees for tuition, boarding (including weekly and full boarding), holiday clubs run by the school, before-school and after-school clubs run by the school, and most ancillary educational services. Anti-forestalling rules apply to pre-payments: fees paid on or after 29 July 2024 (the date of the announcement) for terms commencing on or after 1 January 2025 are caught at 20%, regardless of when the underlying service is delivered. Pre-payments made before 29 July 2024 for future terms remain on the old exempt treatment.

What remains exempt. The exemption continues for nursery classes for children below compulsory school age (broadly under 4 or under 5 in the early-years foundation stage), and for special educational needs (SEN) places that are funded by a local authority through an Education, Health and Care Plan (EHCP). Private SEN places privately funded by parents are caught at 20% unless the school's main purpose is the provision of SEN-specific education.

VAT registration and recovery. Schools that were previously fully exempt have had to register for VAT for the first time. Most now operate as partially exempt institutions because they continue to make some exempt supplies (nursery, SEN, fundraising events) alongside the taxable fee income. Input VAT on new capital projects and on operating costs relating to the taxable fee income is recoverable for the first time. The Capital Goods Scheme adjustments under the standard 10-year (buildings) and 5-year (computer equipment) windows allow some retrospective recovery on assets acquired in the immediately preceding period, subject to detailed rules. HMRC guidance "Charging and reclaiming VAT on goods and services related to private school fees" on gov.uk sets out the transition mechanics.

Fee impact for parents. The headline impact is a 20% addition to school fees, although schools have generally absorbed some portion of the increase by reducing their pre-VAT fee level slightly (to take advantage of input VAT recovery that was not previously available). Independent Schools Council data suggests average net fee increases of around 13 to 15% rather than the full 20%, with material variation by school. Bursaries and means-tested support remain a private matter for each school. The change does not affect state schools.

9. Construction reverse charge (since 1 March 2021)

The domestic reverse charge for building and construction services was introduced on 1 March 2021 to combat missing-trader VAT fraud in construction supply chains. It changes who accounts for VAT on B2B construction services covered by the Construction Industry Scheme (CIS): instead of the supplier charging VAT, the customer accounts for both output and input VAT on its own return.

Which supplies are caught. The reverse charge applies to "specified services" - broadly, construction services that fall within CIS as defined by the Income Tax (Construction Industry Scheme) Regulations 2005, supplied between two VAT-registered businesses in the UK where the customer is not the end user. Specified services include site preparation, construction of buildings or works, installation of mechanical and electrical systems in buildings, internal cleaning of buildings under construction, painting and decorating during construction, and many other building trades.

Mechanics on the invoice. A subcontractor invoicing a VAT-registered main contractor for specified services issues an invoice showing no VAT and adds the note "reverse charge: customer to pay VAT to HMRC". The invoice still shows the net amount, but the VAT line is zero with the annotation. The main contractor then records both an output VAT entry in Box 1 (at the rate that would have applied - usually 20%) and an input VAT entry in Box 4 of its own VAT return, producing a nil net effect provided full recovery applies. The net taxable purchase is recorded in Box 7.

End-user exception. The reverse charge does not apply when the customer is an end user - typically the building owner or developer that will use or sell the finished building rather than supply on the construction service to another party. End users must give a written end-user declaration to the supplier confirming end-user status, and the supplier then charges VAT in the normal way. Intermediary suppliers (those in the chain between subcontractor and final owner) that are connected to the end user can also claim end-user status.

Other exceptions. The reverse charge does not apply to: services supplied to customers who are not VAT registered; services outside CIS (architects' fees, surveying, pure professional services, services on a finished building); zero-rated services such as new residential construction; services to or by employment businesses providing site staff. Each chain link needs to apply the test independently. VAT Notice 735 has the detailed flow charts and worked examples.

Practical effect. The reverse charge has had a major cash-flow impact on subcontractors. Before the change, subcontractors received VAT from their main contractors and held it for a quarter before paying HMRC - effectively a positive cash-flow cycle worth the VAT amount times the holding period. After the change, subcontractors no longer receive VAT on reverse-charge invoices and lose the working-capital benefit. HMRC estimated the fiscal benefit to government at around £100 million per year in reduced fraud, and the cash-flow cost to subcontractors at a one-off transition impact that has now worked through the sector.

10. Place of supply rules

The place of supply rules determine the country whose VAT (or equivalent) applies to a transaction. The basic test for services is set out in VAT Notice 741A. Since 1 January 2021, following the end of the Brexit transition period, the UK uses the same general framework as the EU but operates it independently of the EU framework.

General rule for B2B services. Business-to- business services are taxed in the country where the customer belongs (their place of establishment). A UK consultant invoicing a German VAT-registered business for management consulting services is making a supply outside the scope of UK VAT - the German customer accounts for VAT under its own reverse-charge rules. The UK supplier issues an invoice with no VAT and notes the reverse charge in the invoice description.

General rule for B2C services. Business-to- consumer services are taxed in the country where the supplier belongs. A UK consultant providing a personal service to an individual EU consumer charges UK VAT at the standard 20% by default. The exception is the digital services regime: digital services to EU consumers go through the Non-Union One Stop Shop registration and are charged at the consumer's country VAT rate, not the UK rate.

Land-related services. Services connected with land are always taxed in the country where the land is, regardless of who the customer is. A UK surveyor instructed by a French buyer to survey a property in Spain charges Spanish VAT (and may need to register for VAT in Spain). The land-related rule is broad and catches architects, surveyors, valuation, conveyancing, construction services, hotel and accommodation services, and most professional services tied to a specific property.

Other special rules. Other categories with special place-of-supply rules include: admission to events (taxed where the event is held); restaurant and catering services (taxed where the service is consumed); hire of means of transport (short-term hire - where the vehicle is put at the customer's disposal; long-term hire - where the customer is established); passenger transport (taxed in proportion to the distance covered in each country); intermediary services (taxed where the underlying transaction is taxed).

Practical consequences. Many UK service providers exporting to EU customers no longer need to charge UK VAT and instead make the supply outside scope, simplifying their invoicing. The trade-off is that they need to be sure their customer is a "business customer" for VAT purposes - usually by obtaining the customer's VAT identification number and verifying it through the EU VIES system or local equivalent. Mistakes in classification carry the risk of underpaid VAT.

11. Recent rate changes timeline

Major UK VAT rate changes in chronological order over the past 15 years:

• 4 January 2011 - Standard rate rises from 17.5% to 20%. The current rate, unchanged for 15 years.
• 1 October 2012 - Approved alterations to protected listed buildings move from zero-rate to standard rate. Repairs and maintenance to listed buildings were already standard-rated.
• 1 March 2021 - Domestic reverse charge introduced for B2B construction services within CIS.
• 1 January 2021 - Womens sanitary products move from 5% reduced rate to 0% zero rate following Brexit (tampon tax abolition).
• 1 May 2020 - E-books, e-newspapers, e-magazines and audiobooks move from standard rate to zero rate, aligning with physical equivalents.
• 1 May 2020 to 31 October 2020 - Personal protective equipment (PPE) supplied to fight COVID-19 temporarily zero-rated.
• 15 July 2020 to 30 September 2021 - Temporary 5% reduced rate on hospitality and tourism (food, drink, attractions, accommodation) to support the COVID-19 recovery. Stepped to 12.5% from 1 October 2021 to 31 March 2022 before returning to 20%.
• 1 April 2022 - Energy-saving materials installations move from 5% reduced rate to temporary 0% rate until 31 March 2027.
• 1 January 2025 - Private school fees move from exempt to standard-rated 20%.
• 1 February 2024 - Energy-saving materials zero-rate extended to include battery storage, smart diverters and additional heat pump types.
• 1 April 2027 - Energy-saving materials revert from 0% temporary rate to 5% reduced rate (legislated, not yet in force).

The Office for Budget Responsibility forecasts that VAT will raise approximately £180 billion in 2026/27, making it the single largest source of indirect tax revenue and one of the three largest revenue streams overall alongside Income Tax and National Insurance. Any future rate change has to be modelled carefully against the revenue base - a one-percentage-point change in the standard rate is worth approximately £8 billion to £9 billion per year.

12. Frequently asked questions

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

Zero-rated supplies are still taxable supplies, but the rate of VAT is set at 0%. The crucial consequence is that a business making zero-rated supplies can register for VAT and reclaim input VAT on its purchases in the normal way. Exempt supplies, by contrast, are outside the VAT system entirely - no output VAT is charged, but no input VAT can be reclaimed on costs that relate to making the exempt supplies. A bookshop (zero rated) recovers VAT on shopfittings, IT and packaging. A private dental practice (exempt) cannot recover VAT on the same items. The distinction is the single most consequential idea in UK VAT and underpins partial exemption calculations for mixed-supply businesses.

Why is VAT now charged on private school fees from January 2025?

The Labour government elected in July 2024 announced at the October 2024 Autumn Budget that the long-standing VAT exemption for private education would be withdrawn from 1 January 2025. From that date, fees for tuition, boarding, holiday clubs and related services supplied by private schools are subject to VAT at the standard 20% rate. Pre-payment of fees made on or after 29 July 2024 for terms starting on or after 1 January 2025 is also caught. The exemption that remained for special educational needs (SEN) places funded by local authorities and for some nursery education continues. Schools that were previously exempt have had to register for VAT, and most can now reclaim input VAT on capital and operating costs that were previously irrecoverable.

Are food and drink always zero-rated?

No. Most cold food sold for human consumption is zero-rated, but several categories are standard-rated even when sold by a supermarket: confectionery, ice cream, alcoholic drinks, soft drinks, crisps and savoury snacks, hot takeaway food and drink, and food consumed on the premises (the catering test). The distinction has produced famous tribunal cases: the Jaffa Cakes case (zero rated as cakes, not biscuits), Pringles (standard rated, despite McVitie-style packaging), the pasty tax of 2012 (briefly imposed VAT on hot bakery items, partially reversed). The general principle is that staple groceries are zero-rated and catering or luxury items are standard-rated. HMRC VAT Notice 701/14 has the full rules.

When does the 0% rate on energy-saving materials revert to 5%?

On 1 April 2027. The temporary zero-rate was introduced from 1 April 2022 (initially to 31 March 2027) and extended to cover a broader list of materials including insulation, solar panels, heat pumps, biomass boilers, wind and water turbines, ground source and air source heat pumps, micro combined heat and power units, smart diverters and electrical storage batteries. From 1 April 2027 the reduced rate of 5% applies again. Installations contracted and supplied before 1 April 2027 keep the 0% rate; installations that straddle the date follow the tax point rules - the date of supply or invoice determines which rate applies. Plan major installations to complete before March 2027 to lock in the 0%.

What does the construction reverse charge mean for my business?

Since 1 March 2021 the domestic reverse charge has applied to most B2B supplies of construction services covered by the Construction Industry Scheme (CIS). Instead of the supplier charging VAT, the customer accounts for the VAT on its own VAT return - both as output VAT in Box 1 and (usually) as input VAT in Box 4, producing a nil net effect. Subcontractors invoicing other VAT-registered contractors must not charge VAT and must add a note on the invoice such as "reverse charge: customer to pay VAT to HMRC". The change was made to combat missing-trader VAT fraud in construction supply chains. End-users (the building owner) are outside the reverse charge - normal VAT applies on the final invoice to them.

Where is VAT due on services sold to overseas customers?

The general rule under the post-Brexit place-of-supply framework is that B2B services are taxed in the country where the customer belongs, and B2C services are taxed in the country where the supplier belongs. Special rules override the general rule for certain categories such as land-related services (always taxed where the land is), passenger transport, admission to events, restaurant and catering, hire of means of transport, and digital services to consumers (taxed where the consumer is, usually through the One Stop Shop). For a UK consultant invoicing an EU business customer, the supply is outside the scope of UK VAT and the customer accounts for VAT under its own reverse-charge rules. For a UK consultant invoicing an EU consumer, UK VAT applies at the standard 20%.

Can I reclaim VAT on items I bought before I registered?

Yes, within limits. You can reclaim input VAT on goods you still hold at the date of VAT registration if they were bought in the four years before registration, plus VAT on services received in the six months before registration. The goods must have been bought for business use and you must still have them at the registration date - so stock you have already sold cannot be reclaimed retrospectively. Keep the original supplier invoices showing VAT charged, list the items on a pre-registration VAT schedule, and include the reclaim in your first VAT return. The four-year and six-month windows mirror the time limits for correcting VAT errors.

Are books and e-books really both zero-rated?

Yes. Physical books, newspapers, magazines and journals have been zero-rated since VAT was introduced in 1973. E-books and other electronically supplied publications were originally standard-rated because they were treated as digital services, but the rule changed on 1 May 2020 in response to the COVID-19 lockdown - HMRC accelerated a planned alignment of the rate on physical and digital editions. From that date e-books, e-newspapers, e-magazines and audiobooks are zero-rated provided they are not predominantly advertising or video content. Subscriptions to digital news services that meet the editorial test also qualify. Music downloads, films and standalone software remain standard-rated at 20%.

Is VAT charged on insurance and financial services?

No. Most insurance and financial services are exempt from VAT, although Insurance Premium Tax (IPT) is a separate tax that applies to most general insurance premiums at 12% (standard rate) or 20% (higher rate for travel insurance and most extended warranties). Exempt financial services include loans, mortgages, current accounts, share dealing, foreign exchange, the management of authorised funds and the provision of credit. Advisory and consultancy services around finance are standard-rated, not exempt - the line runs between the actual financial transaction (exempt) and the surrounding professional service (taxable). Insurance and financial services suppliers are usually unable to reclaim input VAT on their costs because of the exempt status of their main output.

What is partial exemption and when does it matter?

Partial exemption applies to businesses that make both taxable supplies (standard, reduced or zero rated) and exempt supplies. Input VAT on costs that directly relate to taxable supplies is fully recoverable. Input VAT on costs that directly relate to exempt supplies is not recoverable. Input VAT on general overheads is apportioned using the standard method (usually a turnover-based ratio of taxable to total supplies). If the irrecoverable input VAT exceeds the de minimis limits (currently £625 per month on average and 50% of total input VAT), the apportionment must be applied formally and reported on the annual adjustment. Common partial-exemption businesses include building societies, dental practices that also sell taxable retail products, training providers that mix accredited and non-accredited courses, and care homes that operate taxable cafes.

What about tampon tax and other rate changes I have heard of?

The tampon tax was abolished on 1 January 2021. Sanitary protection products had been on the reduced 5% rate since 2001 (down from the standard rate before that), and following Brexit the UK was able to set the rate to 0%. From 1 January 2021 womens sanitary products are zero-rated. Other notable rate changes in recent years include the temporary 5% reduced rate on hospitality and tourism during the COVID period (1 July 2020 to 31 March 2022), which then reverted to 20%; the 0% rate on personal protective equipment (PPE) from 1 May 2020 to 31 October 2020; and the move of e-books to zero-rated on 1 May 2020. The standard 20% rate itself has been unchanged since 4 January 2011, when it rose from 17.5%.

How do I know which rate applies to a borderline supply?

Start with HMRC VAT Notice 701/30 (zero-rated supplies), VAT Notice 701/14 (food), VAT Notice 701/16 (water and sewerage), VAT Notice 701/19 (fuel and power), VAT Notice 701/57 (health professionals) and the rest of the 701 series for the category-specific guidance. The HMRC VAT manuals (VATGPB, VATFIN, VATCONST and so on) give the internal interpretation. If the notice is still ambiguous, you can ask HMRC for a non-statutory clearance describing your facts and asking for written confirmation of the rate. Charging the wrong rate is a strict-liability error - you owe HMRC the underpayment regardless of fault - so when value is meaningful, get the answer in writing before invoicing.

13. Related calculators and guides

• VAT calculator - add or remove VAT from any net or gross figure at 20%, 5% or other rates.
• VAT registration guide - thresholds, voluntary registration, deregistration, group registration.
• VAT Flat Rate Scheme guide - sector rates, limited cost trader, worked examples.
• Self-employed calculator - sole trader profit to take-home including Class 2 and Class 4 NI.
• Corporation Tax calculator - small profits, main rate and marginal relief modelling.
• CIS calculator - 20% / 30% deductions on subcontractor invoices.
• UK Corporation Tax rates guide - the wider corporate tax framework.
• UK Capital Gains Tax rules guide - the personal CGT framework for business sales.
• Sole Trader vs Limited Company - structure choice including VAT considerations.
• How UK tax works - the canonical UK tax explainer, covering PAYE, NIC, VAT and Self Assessment.
• UK tax glossary - every UK tax term defined in plain English (158 terms, A to Z).

Primary sources: gov.uk/vat-rates, rates of VAT on different goods and services, VAT Notice 701/30 (zero-rated supplies), construction reverse charge guidance, VAT on private school fees, energy-saving materials Notice 708/6 and place of supply VAT Notice 741A. All figures retrieved on 2026-05-25.