How Much is VAT in UK

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Curious about the 2026 VAT rate in the UK? Same question as always, really: how much do you enjoy paying a little extra for the exact same thing?

What is VAT? How does it work? Who pays? And how much is it in 2026?

In this blog post, we’ll answer these questions and share practical tips on reclaiming VAT (when you actually can).

Here are highlights of what we’ll cover:

What is VAT
What is VAT rate
How to Calculate VAT
How does VAT work
Submitting vat returns
How to Pay VAT
How to claim VAT refund in UK

Let’s get into the details.

What is VAT

VAT (Value Added Tax) is a consumption tax added to many goods and services in the UK. If you’re VAT registered, you’ll usually:

– Charge VAT on your sales (output VAT)
– Pay VAT on business purchases (input VAT)
– Pay HMRC the difference (or reclaim it if input VAT is higher)

VAT is often described as a tax on “value added.” In real life, it works through invoices: you collect VAT on sales and offset VAT you’ve paid on costs.

Who pays VAT? The end consumer ultimately bears the cost, while businesses act as the collectors and record keepers.

You must register for VAT if your taxable turnover exceeds £90,000 in any rolling 12-month period. You can apply to deregister if it falls below £88,000

What is VAT Rate?

A VAT rate is the percentage added to the price of a good or service (or baked into it, if you’re advertising VAT inclusive pricing).

In the UK, there are three main VAT rates, plus exemptions:

– Standard rate: 20%
– Reduced rate: 5%
– Zero rate: 0%
– Exempt: no VAT charged, and different rules apply

Make your tax returns process digital on Akaunting – Get Started!

Current UK VAT rates

Category	Examples	Rate
Standard rate	Most goods and services	20%
Reduced rate	Children’s car seats, home energy	5%
Zero rate	Most food, children’s clothes	0%
Exempt	Some financial and property transactions, postage stamps	N/A

Two quick “don’t mix these up” notes:

Exempt supplies are not taxable, and the exemption can restrict what input VAT you’re allowed to reclaim.
Zero-rated supplies are still taxable (just at 0%), which can matter for reclaiming input VAT.

How to Calculate VAT

To calculate VAT, you need to determine the VAT rate, which depends on the type of good or service purchased.

The standard VAT rate in the UK is 20%, but there are also reduced rates of 5% and 0%. (see the VAT table above).

There are different ways to calculate VAT, depending on whether you want to add VAT to a net price, remove VAT from a gross price, or find out the VAT amount from a gross price. The following are some standard formulas for calculating VAT.

Add VAT to a net price

Multiply the net price by (1 + VAT rate).

Example: net price £100, VAT rate 20%

£100 × 1.20 = £120

Remove VAT from a gross price

Divide the gross price by (1 + VAT rate).

Example: gross price £120, VAT rate 20%

£120 ÷ 1.20 = £100

Find the VAT amount inside a gross price

Multiply the gross price by VAT rate / (1 + VAT rate).

Example: gross price £120, VAT rate 20%

£120 × (0.20 ÷ 1.20) = £20

That last one matters because people often do “20% of £120” and get £24, which is wrong for a VAT-inclusive price.

Alternatively, you can use online tools such as VAT Calculator, The VAT Calculator, or Wise to calculate VAT easily and quickly.

How Does VAT Work?

Let’s use a clean supply chain example with correct VAT logic.

We’ll follow one item through three businesses:

– Manufacturer
– Distributor
– Retailer
– End customer

Assume everything is standard rated at 20%.

Step 1: Manufacturer sells to Distributor

The manufacturer sells at £50 net

– Output VAT: £50 × 20% = £10
– Distributor pays: £60 gross

The manufacturer owes HMRC £10 (ignoring any input VAT they had on their own costs for now).

Step 2: Distributor sells to Retailer

Distributor sells at £80 net

– Output VAT: £80 × 20% = £16
– Retailer pays: £96 gross

Distributor now works out what to pay HMRC:

– Output VAT collected: £16
– Input VAT paid to manufacturer: £10
– Net VAT due: £6

Step 3: Retailer sells to End Customer

Retailer sells at £100 net

– Output VAT: £100 × 20% = £20
– Customer pays: £120 gross

Retailer’s VAT position:

– Output VAT collected: £20
– Input VAT paid to distributor: £16
– Net VAT due: £4

Total VAT paid to HMRC

£10 + £6 + £4 = £20, which matches the VAT the customer paid at the end.

That’s the core point: businesses don’t “pay VAT on the full sale price” in isolation. They generally pay VAT on the value they add, via output VAT minus input VAT.

Submitting VAT Returns

If you’re VAT registered in the UK, you usually submit VAT returns quarterly (unless you’re on a different scheme).

A VAT return summarises:

– VAT you charged customers (output VAT)
– VAT you paid on purchases (input VAT)
– the difference you owe HMRC (or reclaim)

How to submit VAT returns

In practice, most businesses submit VAT returns digitally. And for most VAT-registered businesses, it’s not optional:

Making Tax Digital for VAT (MTD) requires VAT-registered businesses to keep their VAT records digitally and submit VAT returns using compatible software, unless they are exempt.

Submit Your Tax Return Online on Akaunting’s MTD for VAT (UK)

VAT return deadline

The deadline for submitting your return online is usually one calendar month and 7 days after the end of your accounting period. That’s also usually the payment deadline.

How to Pay VAT

VAT-registered UK businesses must pay HMRC any VAT due by the deadline shown in their VAT online account and return.

Here are the common methods:

Online

You can pay through online banking approval or by debit or corporate credit card (depending on HMRC’s supported methods).

Direct Debit

Direct Debit is convenient, but timing matters:

– Set it up at least 3 working days before you submit your VAT return, otherwise the payment will not be taken.
– After you submit your return, HMRC collects the payment automatically based on the rules in your account (including timing around the deadline).

Bank transfer

You can pay by Faster Payments, CHAPS, or Bacs using HMRC’s published bank details and the correct reference.

Standing order (specific schemes)

Standing orders are typically used for arrangements like the Annual Accounting Scheme or payments on account.

At your bank or building society

You’ll need to order paying-in slips from HM Revenue and Customs (HMRC) online or by phone before you can pay this way. It can take up to 6 weeks for them to arrive.

To pay at your bank or building society, please use the provided paying-in slips and pay by cash or cheque. Ensure the cheque is payable to ‘HM Revenue and Customs only.’

Write your 9-digit VAT registration number on the back of your cheque. You will find your registration number:

– in your VAT online account
– on your VAT registration certificate

Standing Order

If you are a business that uses the Annual Accounting Scheme or Payments on Account, you can make regular payments to HMRC through a standing order.

To set up a VAT standing order, you will need to contact HMRC. Standing orders take three working days to reach the HM Revenue and Customs (HMRC) bank account.

How to claim VAT refund in UK

Before you think “refund,” think “evidence.” In most cases, you can only reclaim VAT when you have a valid VAT invoice (or receipt) from a VAT-registered supplier. A pro-forma invoice, a statement, a delivery note, or a random PDF screenshot won’t cut it for input VAT recovery.

If a supplier charged you VAT but left off their VAT number or issued an incorrect invoice, ask for a corrected VAT invoice before you file. And if you genuinely can’t get an invoice (for example, the supplier no longer exists), HMRC may consider robust alternative evidence — but that’s the exception, not the process. Don’t treat a bank statement as a shortcut.

Now, let’s take a real-world example to understand how VAT refunds work in the UK.

Scenario: Sarah’s Stationery Shop

Sarah owns a small stationery shop, “Sarah’s Stationery Haven,” in the heart of London. As a VAT-registered business, Sarah charges VAT on her sales to customers and pays VAT on her business expenses.

Step 1: Input VAT (VAT on Expenses)

Sarah purchases stationery supplies for her shop from a VAT-registered supplier. Let’s say she buys stock worth £1,000 (net). The supplier charges 20% VAT:

– Cost of Stationery Supplies (net): £1,000
– VAT (20%): £200
– Total paid (gross): £1,200

This £200 is Sarah’s input VAT, and she can usually reclaim it on her VAT return if the purchase is for business use and she has the right evidence (usually a VAT invoice).

Step 2: Output VAT (VAT on Sales)

Sarah sells stationery items to her customers and charges VAT. For example, she sells office supplies to a business customer for £300 (net) and adds VAT at 20%:

– Selling Price to Customer (net): £300
– VAT (20%): £60
– Total charged (gross): £360

This £60 is Sarah’s output VAT — VAT she has collected from her customer on behalf of HMRC.

Step 3: VAT Liability

At the end of the VAT period (often quarterly), Sarah works out her VAT position by subtracting input VAT from output VAT:

– Output VAT: £60
– Input VAT: £200
– Net VAT: £60 − £200 = −£140

A negative number means Sarah has paid more VAT on her expenses than she collected from sales in that period.

Step 4: VAT Refund

Because Sarah’s net VAT is −£140, she has a VAT repayment due (a refund). She enters these figures on her VAT return, submits it by the deadline, and HMRC processes the repayment — usually to the bank details on her VAT account, subject to any checks

Final thoughts

VAT is a complex tax affecting most UK businesses and consumers. It is essential to understand how it works, the current rates, and how to claim a refund if you are eligible.

Complying with the MTD requirements and submitting your VAT returns and payments on time is also essential. You can contact a professional tax adviser for more help or advice on VAT matters.

Akaunting also helps you submit your tax returns online through MTD for VAT.

Frequently Asked Questions

How much is VAT on services in UK

Most services are standard-rated at 20%, but some fall into reduced-rate, zero-rate, or exempt categories depending on the service and how it’s supplied. The safest move is to check the official VAT category list.

Education and many healthcare-related supplies are commonly exempt rather than zero-rated, which affects VAT recovery.

Also, for energy-related work, there is a temporary 0% VAT on the installation of specified energy-saving materials until 31 March 2027, after which it reverts to 5% from 1 April 2027.

What is the VAT threshold?

For 2026, the UK VAT registration threshold is £90,000 taxable turnover in a rolling 12 months. The deregistration threshold is £88,000.

What is 324 payment?

That £324 payment was part of the UK government’s Cost of Living Payment support in 2022, tied to specific benefit and tax credit eligibility windows. It’s not a VAT concept and it’s not an ongoing “VAT payment” you plan around in 2026.

What is Import and Export VAT?

Imports: Goods imported into the UK can be subject to UK import VAT. If you’re UK VAT registered, you may be able to use postponed VAT accounting (PVA) to account for import VAT on your VAT return instead of paying it upfront (subject to the rules).

Exports: You can often zero-rate exported goods, but it is conditional. You generally need to export the goods and retain valid evidence, typically within 3 months of the sale (with some exceptions).

Who is Eligible for VAT registration?

In the UK, VAT registration is:

– Mandatory if taxable turnover goes over £90,000 (rolling 12 months) or you expect to exceed it in the next 30 days (depending on your situation).
– Voluntary if you’re below the threshold but want the benefits (like reclaiming input VAT, or issuing VAT invoices to business customers).

Who is Eligible for a VAT refund?

You can get a VAT repayment when:

– Your claim is supported by the right evidence and within the normal VAT rules (including partial exemption rules if you make exempt supplies).

– You’re VAT registered, and

– Your VAT return shows input VAT higher than output VAT for the period, and

How Much is VAT in UK