Last updated: 18 October 2026
VAT is the UK’s main indirect tax, alongside duties on fuel, alcohol, tobacco and vehicles. This guide sets out the key VAT rates, registration thresholds and scheme limits for 2026/27, and summarises the indirect tax rules small businesses most often need to know.
VAT
| VAT rates and limits | 2026/27 |
| Standard rate | 20% |
| Reduced rate | 5% |
| Zero rate | 0% |
| VAT fraction (standard rate) | 1/6 |
| Registration: taxable turnover in the last 12 months, or expected in the next 30 days alone, over | £90,000 |
| Deregistration: expected taxable turnover in the next 12 months under | £88,000 |
| Annual accounting scheme: join if taxable turnover is up to | £1,350,000 |
| Cash accounting scheme: join if taxable turnover is up to | £1,350,000 |
| Flat rate scheme: join if taxable turnover is up to | £150,000 |
Changes To Registration And Deregistration Thresholds
The VAT registration threshold has been £90,000 since 1 April 2024, when it rose from £85,000. The deregistration threshold rose at the same time from £83,000 to £88,000. Both remain unchanged for 2026/27.
You must register within 30 days of the end of the month in which your rolling 12-month taxable turnover goes over £90,000, or straight away if you expect to go over it in the next 30 days alone. Businesses below the threshold can register voluntarily, which can be worthwhile if they mainly sell to VAT-registered customers or make zero-rated sales.
The VAT threshold is no longer linked to the income tax cash basis. Since 2024/25, the cash basis has been the default for sole traders and partnerships, with no turnover limit, unless they opt out and use traditional accounting.
VAT Schemes for Small Businesses
- Cash accounting: you pay VAT when your customers pay you and reclaim it when you pay your suppliers. You can join with taxable turnover up to £1.35 million and must leave if it goes over £1.6 million.
- Annual accounting: you make advance payments and file one VAT return a year. The joining limit is £1.35 million.
- Flat rate scheme: you pay a fixed percentage of your VAT-inclusive turnover, depending on your trade, and generally cannot reclaim VAT on purchases. You can join with taxable turnover up to £150,000 and must leave above £230,000. ‘Limited cost traders’, who spend very little on goods, must use a 16.5% rate, which often makes the scheme poor value.
Making Tax Digital for VAT
All VAT-registered businesses must keep digital records and file their VAT returns using Making Tax Digital compatible software, whatever their turnover. Late filing and late payment are dealt with under a points-based penalty system, with interest charged on late payments.
Place of Supply Rules After Brexit
Since the UK left the EU, UK businesses selling digital services to consumers in the EU can no longer use the UK’s Mini One Stop Shop. Instead, they can register in one EU country for the EU’s non-Union One Stop Shop scheme to account for VAT across the EU. Goods exported from Great Britain to customers outside the UK can normally be zero-rated if you keep evidence of export. Northern Ireland follows special rules for goods under the Windsor Framework.
Fuel Scale Charges
If your business reclaims VAT on fuel for cars that are also used privately, you can either keep detailed mileage records or apply the VAT road fuel scale charge. The scale charges are based on each car’s CO2 emissions and are updated every year, with new rates applying to VAT return periods starting on or after 1 May. Check the current table on GOV.UK before completing your return.
VAT on Private School Fees
Since 1 January 2025, education and boarding services provided by private schools for a charge have been subject to VAT at the standard rate of 20%.
Reduced and Zero-Rated Supplies
Most food, children’s clothing and shoes, books and newspapers, prescription medicines and women’s sanitary products are zero-rated. Domestic fuel and power and children’s car seats are charged at the reduced rate of 5%. The installation of energy-saving materials in homes, such as insulation, heat pumps and solar panels, is zero-rated until 31 March 2027. Some supplies, such as most financial services, insurance, healthcare and education by eligible bodies, are exempt.
DUTIES
Here are the main duties businesses come across:
Fuel Duty
Fuel duty is charged per litre on petrol and diesel. The temporary 5p a litre cut introduced in 2022 has been extended several times, and the government has announced how it will be phased out. Check GOV.UK for the current rate.
Alcohol Duty
Since 1 August 2023, alcohol duty has been charged according to the strength of the drink (its alcohol by volume), with lower rates for draught products sold in pubs and bars. Rates are normally uprated each February.
Tobacco Duty
Tobacco duty is charged on cigarettes, cigars and hand-rolling tobacco and is normally increased by more than inflation at each Budget.
Vehicle Excise Duty
From 1 April 2026, the standard rate of vehicle tax for most cars registered since 1 April 2017 is £200 a year. Electric cars have paid vehicle tax since 1 April 2025, with £10 in the first year and the standard rate after that. An extra £440 a year applies for five years to cars with a list price over £40,000, or over £50,000 for zero-emission cars.
Electric Vehicle Excise Duty
The government plans to introduce a pay-per-mile charge for electric and plug-in hybrid cars from April 2028, at 3p a mile for fully electric cars and 1.5p a mile for plug-in hybrids.
Other Indirect Taxes
Other indirect taxes include insurance premium tax (12% standard rate), air passenger duty, plastic packaging tax, landfill tax and the soft drinks industry levy. If your business is affected, it is worth checking the current rates and registration rules on GOV.UK.
