What is VAT in the UK?

A complete beginner's guide to Value Added Tax in the UK — what it is, how it works, HMRC registration rules, and current rates for 2026.

What Does VAT Stand For?

VAT stands for Value Added Tax. It is a consumption tax applied to most goods and services sold in the United Kingdom. VAT is collected by VAT-registered businesses on behalf of HMRC (His Majesty's Revenue and Customs) and paid to the government.

How Does VAT Work in the UK?

When a UK business sells a product or service, it adds VAT to the price. The customer pays the VAT-inclusive price, and the business pays the collected VAT to HMRC through a regular VAT return — typically quarterly.

VAT-registered businesses can also reclaim the VAT they pay on business purchases (input VAT), making VAT essentially a tax on the final consumer rather than businesses.

Current UK VAT Rates (2026)

• Standard rate — 20%: Applies to most goods and services
• Reduced rate — 5%: Applies to domestic energy, children's car seats, mobility aids
• Zero rate — 0%: Applies to most food, children's clothing, books, newspapers

Who Needs to Register for VAT?

You must register for VAT with HMRC when your taxable turnover exceeds £90,000 in any rolling 12-month period (2026 threshold). You must register within 30 days of exceeding this threshold.

You can also voluntarily register if your turnover is below £90,000 — useful if you want to reclaim VAT on business purchases or appear more established to other VAT-registered businesses.

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