What is VAT? UK Definition 2026/27
Quick Answer
Value Added Tax charged at 20% on most goods and services.
Definition of VAT
Value Added Tax (VAT) is a consumption tax charged on most goods and services. The standard rate is 20%, with reduced rates of 5% (home energy, children car seats) and 0% (food, children clothes, books). VAT-registered businesses charge VAT and reclaim VAT on purchases. Registration is mandatory over £90,000 turnover.
VAT — Key Facts for 2026/27
| Standard rate | 20% |
| Reduced rate | 5% |
| Zero rate | 0% |
| Registration threshold | £90,000 |
How VAT Works — Example
- 1Net price: £100
- 2VAT at 20%: £20
- 3Gross price: £120
- 4To remove VAT: £120 / 1.2 = £100
- 5VAT element: £120 - £100 = £20
How VAT Affects Your Tax
VAT affects pricing and cash flow. Voluntary registration lets you reclaim VAT on purchases but requires charging VAT to customers. The Flat Rate Scheme simplifies accounting for small businesses.
Official HMRC Guidance on VAT
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: VAT ratesFrequently Asked Questions about VAT
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.