VAT is one of those taxes that touches almost every business in the UK. In 2025/26, VAT rules have not changed dramatically. But the pressure to comply has increased.
Even if you feel your business is small, VAT might now be something you cannot ignore.
In this guide we’ll cover everything you need to know about VAT, including:
- What is VAT,
- How to calculate VAT,
- Rules for VAT Registration, and
- Much More…
Let’s get into it!
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What is VAT?
VAT is a consumption tax. It is charged on most goods and services sold in the UK. Businesses collect VAT from customers and pass it on to HMRC. For a business owner, you act as the middleman for HMRC.
The process generally follows three steps:
- You Charge It: When you sell a product or service, you add the VAT to your price.
- You Pay It: When you buy things for your business (supplies, equipment, etc.), you pay VAT to your suppliers.
- You Settle Up: Periodically, you tally up the total VAT you charged your customers and the total VAT you paid on your purchases. You then send the difference to HMRC. If you paid more than you charged, you get a refund.
What Is The UK VAT Rate?
The UK operates three main rates of VAT, depending on the goods or services you supply. The standard VAT rate is 20%.
| VAT Rate | Percentage | What It Applies To | Key Examples |
| Standard Rate | 20% | The vast majority of goods and services. | Electronics, clothing (adult sizes), professional services, hospitality. |
| Reduced Rate | 5% | Specific items considered essential or socially beneficial. | Domestic fuel and power (gas and electricity), children’s car seats. |
| Zero Rate | 0% | Items the Government wants to encourage or make cheaper for consumers. | Most food (excluding ‘luxuries’), children’s clothing and footwear, books, newspapers, public transport fares, prescription medicines. |
VAT-Exempt vs. Zero-Rated:
This is a common point of confusion. Both exempt and zero-rated items have no VAT added for the customer. The crucial difference is for the business.
- For zero-rated items, a business can still claim back the VAT it paid on its related costs. This is because the item is still technically taxable, just at a 0% rate.
- For exempt items, a business cannot claim back any VAT it paid on related costs. This is because the items are completely outside the VAT system.
What is the VAT Threshold in the UK? (2025/26)
For the 2025/26 tax year, the VAT registration threshold is £90,000 of taxable turnover.
What is ‘Taxable Turnover’?
Taxable turnover is the total value of all your business sales that are subject to VAT, even if the rate is 0%. It does not include sales that are VAT-exempt.
In short, it’s the total revenue you get from sales of:
- Standard-rated goods and services
- Reduced-rated goods and services
- Zero-rated goods and services
What Happens When You Hit the Threshold?
Once you determine you need to register:
- You must inform HMRC: You’ve got 30 days from the end of the month in which you exceeded the £90,000 threshold to register.
- Effective date: Your VAT registration “effective date” will normally be the first day of the second month after you exceed the threshold. (This is from HMRC’s rules for certain cases, such as in their guidance on private school fees.)
- You must start charging VAT: From that effective date, you need to issue VAT invoices and collect VAT from your customers on taxable supplies.
- Filing VAT returns: Typically quarterly, though there are other schemes (annual accounting, etc.) depending on your business size and preferences.
- Record keeping: You must keep records of your sales, purchases, VAT paid and charged, such as invoices, receipts, and anything needed to support your VAT returns.
Registering for VAT
As we discussed above, the threshold that determines whether you must register for VAT is currently £90,000.
What Are Rules for VAT Registration?
Businesses must register for VAT if they meet either of the following two conditions:
- If your business’s taxable turnover exceeds the £90,000 threshold in any 12-month rolling period, or
- If you expect to exceed it in the next 30 days.
You can also choose to register for VAT voluntarily, even if your sales are low. People do this to claim back the VAT they pay on their own business expenses.
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How Does Accounting for VAT Work?
When you’re VAT registered, you become a tax collector for the government. It involves two types of VAT:
- VAT on Sales (Output VAT): You add this to the price you charge your customers. You owe this money to HMRC.
- VAT on Purchases (Input VAT): You pay this when you buy things for your business (laptops, materials, etc.). HMRC lets you claim this money back.
Every few months, you fill out a VAT return. You simply figure out the difference:
Total VAT Charged – Total VAT Paid = What you send to or get back from HMRC
What is a VAT return?
A VAT return is a form that VAT registered businesses submit to HMRC, typically every three months. It is used to report:
- The total VAT you charged on your sales (output VAT).
- The total VAT you paid on your business purchases (input VAT).
The purpose of the return is to calculate the difference between the VAT you collected and the VAT you paid. If you charged more VAT than you paid, you must pay the difference to HMRC. If you paid more than you charged, you can reclaim the difference as a refund.
Can You Claim VAT Back?
Yes, if you are a VAT-registered business and you buy things for your business, you can usually claim back the VAT you paid on those items. This is done through your regular VAT return.
There are some specific exceptions, like client entertaining and most new car purchases. You can also reclaim VAT on certain items bought before you registered, up to four years for goods and six months for services.
How to Calculate VAT?
The standard VAT rate in the UK is 20%.
- To add VAT (finding the total price):
If something costs £100 before VAT, you multiply that by 1.2.- £100 x 1.2 = £120 total price.
- To take VAT off (finding the price before tax):
If you know the total price is £120, you divide by 1.2.- £120 ÷ 1.2 = £100 (the original price).
What Is My VAT Number?
Your VAT number is like an ID number for the businesses that charge VAT. It is a unique nine-digit code that HMRC issues to your business when you register for VAT. This number appears on your invoices when you charge VAT to your customer.
VAT number is not like sales tax. Sales tax is added only at the point of sale. VAT, on the other hand, is applied at each step in the supply chain.
Because of your VAT number, you can also reclaim VAT on your business purchases.
Check Out: Where To Find A Business’s VAT Number – A Complete Guide 2025
How To Check If A Company Is VAT-Registered?
To check if a company is VAT registered, the most reliable methods involve using official government tools or reviewing the company’s own documentation. For UK-based companies, you can use the official online tool provided by HMRC. After you enter the company’s nine-digit VAT number (which is often preceded by “GB”), the tool will verify if it’s active and will also display the business’s registered name and address. For companies in Northern Ireland or other parts of the EU, you should use the European Commission’s VIES system instead.
If you don’t already have their VAT number, you can usually find it on invoices, receipts, or other official business documents, as companies that are VAT-registered are required to show this information. Many businesses also post their VAT number publicly on their website, typically on the contact page or in the footer.
For a direct approach, you can simply contact the company and request their VAT registration details.
In cases where you have a VAT number but want to be certain of its validity, the HMRC VAT helpline is also available for UK businesses.
Do Charities Pay VAT?
Charities must register for VAT if their taxable turnover is over £90,000. Some of their activities, like donations where nothing is given in return, are completely outside the scope of VAT. Other activities like fundraising events and welfare services are exempt.
Many supplies sold to charities, like certain goods for disabled people, are zero-rated, and some supplies, like domestic fuel, are at a reduced rate. So, a charity’s VAT situation depends on what they do.
What About Properties And VAT?
The rules for property are complicated. When you buy or sell a residential property, there’s usually no VAT. However, buying a new commercial property (less than three years old) does have VAT.
With older commercial properties, the seller can “opt to tax,” which means they charge VAT but can also reclaim any VAT they paid on the property.
How to Get VAT Advice?
- Use HMRC guidance as their website has detailed VAT notices (like Notice 700/1 on who should register).
- Use the VAT Registration Estimator tool from HMRC, launched recently, to see what VAT registration might mean for your business.
- Speak to a VAT accountants or tax advisor (especially for complex cases like partial exemption, charities, or property).
- Keep proper records from early on. Invoices, receipts, and bookkeeping will help enormously if you ever get queried by HMRC.
Are you looking for professional tech-savvy tax advisors and accountants in the UK to guide you? Contact us now!
The Bottom Line
VAT is a significant tax for your business to navigate. The current £90,000 threshold is a hard line you must not cross without being prepared.
Whether you choose to register voluntarily or wait until it’s mandatory, having the right systems and expert advice in place will save you headaches, penalties, and potentially missed VAT reclaims.
WE CAN HELP
If you need help with your VAT or any other accounting services, visit Accotax.co.uk. We offer a range of packages designed to fit your unique needs!
We’re confident that our guidance will free you up to think about strategy and growth, not spreadsheets and deadlines.
Reach out, get an instant quote and let us help you stay VAT compliant!
Disclaimer: The information about Tax on a Second Job, provided in this article including text and graphics. It does not intend to disregard any of the professional advice.