What is VAT?
VAT, or Value Added Tax, is a tax on the sale of most goods and services in the UK. The standard rate is 20%. A reduced 5% rate covers things like home energy, and many essentials such as most food and children's clothes are zero-rated. Businesses collect it for HMRC.
VAT is charged at each stage of a supply chain. A business adds VAT to its sales and can reclaim the VAT it paid on its own purchases. It pays HMRC the difference. In the end the full tax falls on the final consumer, who cannot reclaim it. For example, a furniture maker reclaims the VAT on the wood it buys. The shop reclaims the VAT it paid the maker. Only the shopper bears the full 20%.
The standard rate has been 20% since January 2011. A business must register for VAT if its taxable turnover goes over £90,000 in 12 months. Some things are exempt, such as most financial services, education and health care, though private school fees have been charged VAT since January 2025. Businesses below the threshold can register voluntarily, which lets them reclaim VAT on their costs.
VAT is one of the three biggest taxes, alongside income tax and National Insurance. Because poorer households spend a larger share of their income, critics call it regressive. Zero rates on food and children's clothes soften that effect. Raising VAT brings in a lot of money quickly, but it also pushes up prices and inflation.
Who it affects: Everyone buying most goods and services
The left tends to see VAT as falling hardest on lower earners and prefers raising money from income or wealth instead.
The right tends to see VAT as an efficient tax on spending that does less harm to work and investment than income taxes.
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Play WeDecide freeCommon questions
What is the VAT rate in the UK?
The standard rate is 20%. There is also a 5% reduced rate and a 0% zero rate.
When does a business have to register for VAT?
When taxable turnover passes £90,000 in a rolling 12 months, or is expected to within the next 30 days.
Is food VAT free?
Most basic food is zero-rated. Restaurant meals, hot takeaways, sweets and crisps usually carry 20% VAT.