Understanding how much VAT you pay in the UK is essential for consumers, businesses, freelancers, and anyone importing or selling goods and services. As we move into the 2025/2026 financial year, VAT remains a major part of the UK’s tax system—affecting everything from groceries and fuel to construction work and hospitality.
This comprehensive guide explains how much VAT is in the UK, when each VAT rate applies, the difference between VAT-inclusive and VAT-exclusive prices, and how businesses can calculate VAT accurately.
What Is the VAT Rate in the UK for 2025/2026?
For the tax year 2025/2026, the United Kingdom continues to apply three main VAT rates:
Standard Rate – 20%
This is the rate applied to most goods and services, including:
- Electronics
- Clothing
- Professional services
- Furniture
- Cars
- Entertainment services
The 20% VAT rate has been in place since January 2011 and remains unchanged for 2025/2026.
Reduced Rate – 5%
The 5% VAT rate applies to essential items, such as:
- Children’s car seats
- Home energy (gas, electricity, heating oil)
- Energy-saving materials in homes
- Certain chargers and mobility aids
- Smoking cessation products
This rate helps lower the cost of essential or socially beneficial goods.
Zero Rate – 0%
Zero-rated goods still fall under VAT rules, but VAT is charged at 0%. This includes:
- Most food and groceries
- Children’s clothes and footwear
- Books, newspapers, magazines
- Public transport
- Medicine on prescription
Businesses selling zero-rated goods can usually reclaim VAT on business expenses.
Is VAT Changing in 2025 or 2026?
As of the latest updates, no official changes to VAT rates have been announced for 2025/2026.
The UK Government’s Autumn Budget and Spring Statement typically confirm VAT changes. If adjustments occur—such as temporary cuts for hospitality or energy—they are widely announced.
For now, the UK remains stable at:
- 20% Standard VAT
- 5% Reduced VAT
- 0% Zero VAT
Why VAT Matters in the UK
VAT contributes billions to the Treasury and funds essential public services. It is designed to be fair and consistent, applying only when consumers buy goods or services.
For businesses:
- VAT affects pricing
- VAT returns require accurate records
- Being VAT-registered can improve trust and credibility
Understanding VAT rates ensures compliance and prevents overcharging or undercharging customers.
How to Calculate VAT in 2025/2026
Businesses need VAT calculations constantly—when invoicing, importing goods, pricing products, or preparing tax returns.
There are two common ways to calculate VAT:
1. VAT Exclusive → VAT Inclusive (Add VAT)
To add 20% VAT:
Price × 1.20 = VAT-inclusive price
Example:
£100 × 1.20 = £120
VAT amount = £20
2. VAT Inclusive → VAT Exclusive (Remove VAT)
To remove VAT from a 20% VAT-inclusive price:
Price ÷ 1.20 = VAT-exclusive price
Example:
£120 ÷ 1.20 = £100
VAT amount = £20
Use Online Tools for Accuracy
Tools like VAT Calculator UK help you calculate:
- 20% VAT (inclusive/exclusive)
- 5% VAT
- 0% VAT
- Reverse VAT
- Net vs Gross amounts
These tools reduce calculation mistakes and are ideal for business invoices.
Examples of VAT in Everyday Life (2025/2026)
Here’s how VAT applies to common purchases:
1. Eating Out
Restaurants and cafes charge 20% VAT on meals.
2. Home Energy Bills
Electricity and gas attract the 5% rate for domestic use.
3. Clothing
Adults’ clothing → 20% VAT
Children’s clothing → 0% VAT
4. Travel
Bus and train tickets → Zero-rated
5. Online Purchases
Most goods bought online include 20% VAT, unless zero-rated.
Do All UK Businesses Need to Charge VAT?
Not all businesses charge VAT. Only those meeting certain conditions must register.
VAT Registration Threshold 2025/2026
You must register for VAT if your taxable turnover exceeds:
£90,000 per year (updated threshold)
You may also register voluntarily to reclaim VAT on expenses.
Who Does Not Charge VAT?
Some businesses are exempt, including:
- Medical services
- Insurance
- Education and training
- Financial services
Exempt items are not the same as zero-rated items.
VAT Inclusive vs Exclusive Prices (UK)
Understanding the difference is important for invoices and business pricing.
VAT-Exclusive Price
- Does not include VAT
- VAT must be added
- Used for business-to-business invoicing
Example: £100 + VAT (20%) = £120
VAT-Inclusive Price
- VAT is already included
- Common for consumer sales
- Displayed on retail products
Example: £120 includes £20 VAT, net price is £100.
VAT on Imports and Online Shopping in 2025/2026
Since Brexit, VAT rules on imports have changed:
Goods under £135
VAT is collected at checkout.
Goods over £135
VAT is charged at the border.
Digital services
Charged at the consumer’s local VAT rate.
For businesses purchasing goods internationally, understanding import VAT is essential.
Will VAT Increase in the Future?
There is ongoing speculation, but no confirmed increase.
Possible future VAT adjustments may focus on:
- Energy efficiency incentives
- Green products
- Hospitality sector support
Any changes will be announced in the national budget.
Frequently Asked Questions (FAQ)
1. How much is VAT in the UK right now?
The standard rate is 20%, the reduced rate is 5%, and some items are zero-rated.
2. How long has VAT been 20%?
Since 2011, the UK standard VAT rate has remained at 20%.
3. Do groceries have VAT?
Most groceries are zero-rated.
4. Is VAT changing in 2025 or 2026?
No changes have been announced as of now.
5. Who pays VAT?
Consumers pay VAT when buying goods, while businesses collect and submit it to HMRC.
Final Thoughts: VAT in the UK 2025/2026
The UK VAT system remains stable for 2025/2026 with the familiar:
- 20% Standard Rate
- 5% Reduced Rate
- 0% Zero Rate
Understanding how VAT works helps you make informed financial decisions, whether you’re running a business, shopping online, or calculating the true cost of goods.
For the quickest and most accurate calculations, tools like VAT Calculator UK ensure you never miscalculate VAT again.