UK VAT Rates and Trading Rules
Value Added Tax is one of the most reliable ways for the government to collect funds necessary to cover various areas of public spending.
The most popular UK VAT Rates are:
• Standard rate (20%): applied to most goods and services, like clothing for adults, electronics, and services
• Reduced rate (5%): Applied to specific items like home energy (domestic electricity from 5% to zero – from 1 October 2026) and children’s car seats.
• Zero rate (0%): Applies to essential items like most food and children’s clothing, in particular school uniforms (but this depends on the size of the clothing and age of the pupil.
• Exempt: Items outside VAT, such as financial and property transactions or postage stamps.
There are also temporary tax rates, for example, 5% on event tickets, saving rates during summer holidays on summer attractions, etc. (that ran from 25th of June to 1st September and have now expired)
How is VAT Calculated?
VAT is added to the base price of goods, plus any additional costs (for example, shipping fees).
UK VAT Registration Rules
Registration Threshold: Businesses must exceed £90,000 in taxable turnover (currently) over a 12-month period. MTD for businesses over £85,000 has been in place since April 2019. You can manage returns and check rules directly via the official UK gov portal.
General Rules when charging VAT
B2B - 20% VAT standard charge applies for most goods and services (however, a different VAT rate must apply if the service falls under a different VAT rate) if the company is VAT registered.
VAT paid and collected must be submitted quarterly as a VAT return to HMRC, and any outstanding amounts (the difference between input and output tax) are usually paid within a 1-month-and-7-day deadline.
The buyer (VAT-registered business) reclaims the VAT paid as input tax and pays to HMRC any VAT collected in the sale of their products and services, called output tax.
B2C - Correct VAT must be charged, and a VAT invoice issued when a VAT-registered business sells to individuals/consumers and other non-registered businesses in the UK.
The EU’s VAT rates may vary, from low rates such as 17% in Luxembourg, 18% in Cyprus and Malta, and common rates of 20% in France, 22% in Italy, 23% in Poland, Portugal, 25% in Finland, Denmark, and Croatia, and Sweden, making an average European VAT rate of 21.9%.
Until the end of 2020, the UK was part of the European Union for business exchange.
Some of the General VAT Rules when trading with the EU
With Brexit, from 1 January 2021, the EU now treats the UK as an independent country, similar to how it has treated the US.
B2B transactions from the EU to the UK:
VAT is charged as per the rule that the place of supply determines the VAT rate.
Generally, businesses based in the EU do not charge local VAT rates for goods and services sold to UK customers (zero rate).
When goods cross the border from the EU, the 20% UK VAT rate applies.
UK VAT-registered businesses importing from the EU can now postpone VAT payment (PVA) on higher-value goods until they arrive at the border, or as soon as possible after (rather than paying VAT on presentation of invoice).
When purchasing low-value items, up to £135 (or Euro 150), from the EU, UK businesses and individuals must pay VAT at the point of sale.
A full customs declaration is required, and an EORI registration number -EORI UK for goods leaving the UK, EORI EU for goods leaving Europe to the UK.
Goods and Services supplied from the UK
B2B UK businesses do not charge VAT to businesses placed in Europe and do not need to register in the EU (the seller issues an invoice for the net amount only, with no VAT charged; however, the invoice is required to have reverse VAT rate)
B2C Services from the UK: With UK–EU business-to-customer goods increasingly sold online, some post-Brexit sales may be subject to special rules when a business sells to customers. For example, digital sales (downloads, books and other material)
As with goods and services supplied by the EU, the VAT rate charged by the UK business depends on the place of supply (where the customer is located), and VAT is charged at the local rate.
The digital product is supplied (under telecommunication and broadcasting services rules); the provider- for example, a UK-based company selling downloadable recipes, apps or software to someone based in Europe- must charge local VAT at the rate where the customer is based (the download takes place). VAT charged must then be declared in the consumer’s country. The VAT filing is done via an EU-appointed agency, and the UK-based business doesn't need to register in every state where they sell.
Like low-value digital products, other goods sold online (up to £135 or Euro 150) are charged VAT at the point of invoice issue under the IOSS (Import One Stop Shop) Rules.
You must still file the VAT with the consumer’s VAT authorities.
Read more about VAT rules:
