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Finance & Tax

How VAT works in the UK

A plain-English explanation of UK VAT: the three rates, how to add and remove VAT, and where to check the official rules.

By MyUtils editorialPublished: Updated:

What VAT is

Value Added Tax (VAT) is a tax on most goods and services sold in the UK. Businesses that are VAT-registered charge it to their customers and pass it on to HMRC, after deducting the VAT they paid on their own business purchases.

The three rates

GOV.UK publishes three rates:

  • Standard rate: 20% for most goods and services.
  • Reduced rate: 5% for some goods and services, for example home energy and children's car seats.
  • Zero rate: 0% for items such as most food and children's clothes. Zero-rated supplies are still VAT-taxable supplies, at 0%.

Some supplies are exempt from VAT altogether, for example postage stamps and some financial and property transactions. Exempt is different from zero-rated.

Adding VAT to a net price

Multiply the net price by 1 plus the rate. At the standard rate that is multiplying by 1.2.

£250 net × 1.20 = £300 gross, of which £50 is VAT.

Removing VAT from a gross price

Divide the gross price by 1 plus the rate. At the standard rate that is dividing by 1.2.

£300 gross ÷ 1.20 = £250 net, so the VAT is £50.

A common mistake is to take 20% off the gross price. That removes too much, because 20% of £300 is £60, not £50.

Check the official source

Which rate applies depends on exactly what is being supplied, and rules change. Always confirm against GOV.UK: VAT rates or ask a qualified adviser.

You can try the numbers with our UK VAT Calculator.

Try the toolUK VAT Calculator

Frequently asked questions

What is the standard rate of VAT in the UK?

20%, according to GOV.UK. The reduced rate is 5% and the zero rate is 0%.

What is the difference between zero-rated and exempt?

Zero-rated supplies are taxable at 0%, while exempt supplies are outside VAT altogether. The difference matters for VAT registration and for recovering VAT on costs.

How do I remove VAT from a price?

Divide the gross price by 1.2 for the standard rate. Do not simply subtract 20%.