We’ve all paid VAT before on a product or service – it’s everywhere. But when it’s time to register your own business for VAT, you’re probably wondering how much you actually need to charge. The short answer is it depends.

There are different VAT rates depending on what exactly it is you are selling, and it’s up to you to ensure you get this right. But don’t worry, we’re here to help!

What is VAT?

VAT (short for Value Added Tax) is a consumption tax added to the price of most goods and services at every point of the supply chain where value is added. It’s charged as a percentage of the original price and added to the sale. In most cases, businesses with a taxable turnover of £90,000 or more will need to register for VAT, and then charge it on the taxable sales they make.

Businesses can also choose to register for VAT voluntarily if this will help them be more tax-efficient.

What is the UK VAT rate?

There are three main rates that VAT registered businesses should charge on taxable sales; the standard 20% which applies to most goods and services, the reduced rate which charges 5% on things like domestic energy, and the zero rate which is charged on things like children’s shoes.

It’s worth noting anything zero rated will still need to be recorded in your VAT return, even though your customers technically won’t pay any VAT.

The difference between VAT exempt and zero-rated

Zero-rating something for VAT is different to it being exempt altogether. A business which supplies only VAT-exempt items can’t register for VAT, but one which deals in zero-rated items can. This is important, because the business selling exempt items won’t be able to claim back the VAT it pays on purchases, but the second business could.

For example, if your business only sells goods or services exempt from paying VAT, such as education and training or insurance, finance, and credit, you cannot register for VAT, or claim any back.

You can apply for a VAT exemption if you mainly sell zero-rated goods, but this means you cannot claim any VAT back from your business expenses. Some businesses can also be partly exempt.

UK VAT rates 2026/27

How do I add VAT to my prices?

Being VAT registered means you’ll need to keep digital records, so if you’re using bookkeeping software then this will be taken care of when you create invoices; you’ll just need to select what rate of VAT should be charged on each item.

If you manage digital record-keeping another way, such as with a spreadsheet, then calculating your invoices might look a bit more manual but it’s still easy to do. Our table below shows a simple formula you can use to calculate the amount of VAT you need to charge.
 

 
It’s useful to think about what registering for VAT means for your pricing. Adding VAT to your sales could put customers off, for example. Another option is to absorb the extra amount yourself, so the amount you charge your customer doesn’t change but this will come out of your profits instead.
 

What needs to go in a VAT invoice?

VAT invoices are different to the regular invoices you sent to clients before registering and need to include:

• The time of supply
• The date of issue of the document
• The total VAT chargeable, expressed in sterling
• A description to clearly identify the goods or services supplied
• If your products or services are exempt or zero rated and the reason for this
• The gross total amount payable excluding VAT

Check out the gov.uk guidance for showing VAT on an invoice.

Telling HMRC about the VAT you charge

VAT registered businesses must submit VAT returns to tell HMRC about the amount of VAT they charged on sales and paid to other businesses over a particular period of time.

You’ll normally make a digital submission through MTD software every three months to report what happened in the previous ‘accounting period’ (the time period covered by the return). Some VAT schemes, such as the VAT Annual Accounting Scheme have different reporting requirements.

You’ll also need to pay the VAT you owe as per the deadline on your VAT return, and you can do this online.

 
We know VAT can be tricky to understand. If you need any help, call our team on 020 3355 4047. If you’re looking for an accountant, get an instant quote online today.