Most prices you see on a UK shelf already have VAT built in, which is why the tax is easy to ignore until you run a business and have to charge it, reclaim it and report it yourself. Three rates cover almost every sale, but the tricky part is knowing which one applies and how to move between a price with tax and without it. This guide lists the rates in force for 2026, flags the recent change that pulled private school fees into the standard rate, and works through the arithmetic in both directions.
What VAT actually taxes
VAT is charged on the value a business adds, not on the full price at every step. A registered trader collects VAT on its sales (output tax) and claims back the VAT on its own costs (input tax), then hands HM Revenue and Customs the gap between the two. Because each link in the chain recovers what it paid, the real burden lands on the final buyer. A business below the registration threshold cannot reclaim anything, so for it the VAT on purchases is a straight cost that eats into margin.
If you only need to check a single figure, the UK VAT calculator adds or strips tax at any of the three rates.
The UK’s VAT rates for 2026
The rate structure is unchanged for 2026 and is set out by HMRC:
- 20%, the standard rate. This has applied since 4 January 2011 and covers the vast majority of goods and services: electronics, adult clothing, alcohol, furniture, professional advice and anything not given a lower rate.
- 5%, the reduced rate. Domestic gas and electricity, children’s car seats, mobility aids fitted for people over 60, and sanitary products. Some energy-saving materials such as insulation and heat pumps are temporarily zero-rated in Great Britain until 31 March 2027, after which they return to 5%.
- 0%, the zero rate. Most food, books, newspapers, children’s clothes and shoes, prescription medicines, and public transport fares. A zero-rated sale still counts as taxable, so the seller keeps the right to reclaim input tax, which is the key difference from an exempt sale.
Some supplies sit outside VAT altogether as exempt: insurance, postage, betting, most financial and property transactions, and health and education services. An exempt business charges no VAT and, unlike a zero-rated one, cannot recover the VAT on its costs.
Quick reference: which rate applies
| Category | 2026 rate |
|---|---|
| Most goods and services, electronics, alcohol, adult clothing | 20% |
| Domestic fuel and power, children’s car seats, sanitary products | 5% |
| Energy-saving materials in Great Britain (to 31 March 2027) | 0% |
| Most food, books, newspapers, children’s clothing and footwear | 0% |
| Insurance, finance, education, health services | exempt |
The recent change: VAT on private school fees
The biggest VAT shift affecting households recently is not a rate move but a change to what counts as taxable. From 1 January 2025 the long-standing exemption for private education ended, and school fees and boarding charged by a private school became standard-rated at 20%. Announced on 29 July 2024, the measure also caught pre-payments made from that date onward for terms starting in 2025, so families who paid a year of fees early did not escape it. This continues in full through 2026. State schools and most nurseries are unaffected because they do not charge fees in the way the rule targets.
Registration and deregistration thresholds
You must register for VAT once your taxable turnover in any rolling 12-month period passes 90,000 pounds, a figure confirmed by GOV.UK and frozen for 2026. You also have to register if you expect to go over 90,000 pounds in the next 30 days alone. Once registered, you can apply to deregister if your turnover falls below the 88,000 pound deregistration threshold. Plenty of small traders stay just under the line on purpose to avoid adding 20% to their prices, though that also blocks them from reclaiming input tax on stock and equipment.
Adding and removing VAT
The maths is the same at every rate; only the multiplier changes. To add VAT to a net (tax-exclusive) price, multiply by one plus the rate. To pull VAT out of a gross (tax-inclusive) price, divide by one plus the rate.
- Add 20% to a 100 pound net price: 100 times 1.2 is 120.00, of which 20.00 is VAT.
- Remove 20% from a 120 pound gross price: 120 divided by 1.2 is 100.00 net, so the VAT was 20.00.
- Add 5% to a 100 pound net price: 100 times 1.05 is 105.00, with 5.00 of VAT.
The common slip is to take 20% off the gross figure to find the net, which overshoots: 20% of 120 is 24, not 20. Always divide by 1.2 rather than subtracting 20%. When you are setting a shelf price and need the margin to survive after VAT is added, the markup calculator builds the cost-to-price step for you.
Accounting schemes and digital filing
Once registered, the default is to account for VAT on the standard basis every quarter, but three schemes can cut the admin:
- Flat Rate Scheme: available if your VAT-exclusive turnover is 150,000 pounds or less. You pay a fixed percentage of gross turnover instead of tracking input tax on every purchase.
- Cash Accounting Scheme: for turnover up to 1.35 million pounds, you account for VAT when you are actually paid rather than when you invoice, which helps cash flow if customers are slow.
- Annual Accounting Scheme: also up to 1.35 million pounds, you make advance payments and file one return a year instead of four.
Whichever basis you use, Making Tax Digital for VAT has been mandatory for all VAT-registered businesses since April 2022, so returns go through compatible software rather than the old online form.
A worked example
Say you run a small furniture workshop. You buy timber for 500 pounds plus 20% VAT, a total of 600 pounds, and sell a finished table for 1,200 pounds plus VAT, a gross price of 1,440 pounds.
- Output VAT you collect on the sale: 240.00.
- Input VAT you reclaim on the timber: 100.00.
- VAT you pay HMRC: 240.00 minus 100.00, which is 140.00.
Your trading profit is the 1,200 net sale minus the 500 net cost, so 700 pounds, and the VAT passes through without denting that figure. To see how that profit then meets income tax and National Insurance once it reaches you, the UK salary calculator runs the take-home side.
FAQ
What is the standard VAT rate in the UK in 2026?
The standard rate is 20% and has not changed for 2026. It has applied since 4 January 2011 and covers most goods and services that do not qualify for the 5% reduced rate or the zero rate.
What is the difference between zero-rated and exempt?
A zero-rated business charges 0% VAT but keeps the right to reclaim VAT on its purchases. An exempt business charges no VAT and cannot reclaim input tax, so the VAT it pays on costs becomes a real expense.
How do I work out the VAT inside a price that already includes it?
Divide the gross price by one plus the rate. For 20%, divide by 1.2 to get the net price, then subtract that from the gross to find the VAT. Do not just take 20% off the gross figure.
When do I have to register for VAT?
Once your taxable turnover passes 90,000 pounds over any rolling 12 months, or when you expect to go over 90,000 pounds within the next 30 days. Below that you can still register voluntarily if reclaiming input tax outweighs the extra paperwork.
Are private school fees really subject to VAT now?
Yes. Since 1 January 2025 fees and boarding charged by private schools are standard-rated at 20%, following the removal of the old education exemption. The change still applies for the 2026 academic year.
Do I have to keep VAT records digitally?
Yes. Under Making Tax Digital for VAT, every VAT-registered business must keep records and file returns through compatible software. This has been mandatory for all registered businesses since April 2022.
Sources
- HM Revenue and Customs, VAT rates on different goods and services.
- GOV.UK, Register for VAT: when to register.
- HM Revenue and Customs, Applying VAT to private school fees.
- GOV.UK, Making Tax Digital for VAT.