The United Kingdom (UK) charges Value Added Tax (VAT) on most transactions. This consumption tax applies at each stage of the supply chain, and businesses are obligated to collect and remit the tax on behalf of His Majesty's Revenue and Customs (HMRC).
Businesses in the UK must register for VAT once they reach a certain turnover threshold, but companies outside the UK, including those in the US and the EU, do not have a minimum threshold before registration is required. You must register from the first taxable sale to a UK customer.
After the UK left the EU on December 31, 2020, due to Brexit, the UK is no longer part of the EU VAT system. UK VAT is an entirely separate system, and companies can no longer comply with UK VAT through the EU's One-Stop Shop (OSS) or Import One-Stop Shop (IOSS) schemes.
Businesses that were previously in compliance because of their participation in EU VAT schemes may now be non-compliant and must learn the UK's new requirements.
Within the UK's system, the standard VAT rate is 20%, but there are also reduced rates and zero-rated items. You must charge tax at the correct rate and file and remit taxes on schedule to remain in compliance.
This guide will explain UK VAT rates, registration requirements for domestic and foreign businesses, post-Brexit complications, and how to ensure you are in full VAT compliance with the UK's VAT system, including for the supply of digital services.
What is VAT and how does it work in the UK?
Value-added taxes are consumption taxes charged on products or services at each stage of the supply chain when value is added.
While tax is collected at each phase, the system is a credit-invoice system, so intermediate companies reclaim taxes paid, and only the end user bears the full burden of VAT.
Registered businesses must charge output VAT when they sell an item, but can reclaim the VAT they paid (input VAT). The net amount is paid to, or reclaimed from, HMRC.
However, the end consumer pays the VAT and is not able to reclaim it. For example:
- A manufacturer sells £1,000 of items to a wholesaler, charging £200 VAT (20%). The manufacturer may reclaim their input VAT.
- The wholesaler sells to a retailer for £1,500 + £300 VAT (20%). The wholesaler reclaims the £200 input VAT it paid, and thus pays £100 to HMRC.
- The retailer sells to the consumer for £2,000 + £400 VAT (20%). The retailer reclaims their £300 input VAT and thus pays £100 to HMRC.
- The consumer pays £2,400 total, including VAT, and cannot reclaim the £400 VAT
VAT differs from U.S. sales tax, which is destination-based and collected only on the final sale price when the retail seller sells directly to consumers. In the U.S., resellers are exempt from sales tax. The tax is not charged at each stage of the supply chain.
His Majesty's Revenue and Customs (HMRC) administers UK VAT. While countries in the EU are subject to the oversight of the European Union and must establish their VAT systems within the confines of EU guidelines, the UK sets its own rates, rules, and enforcement processes.
UK VAT rates
The standard VAT rate in the UK is 20%. However, there are four VAT categories. The category is determined based on the product or the service being sold, not by the buyer or seller. The same item is always taxed at the same rate, regardless of who is purchasing or selling it.
Here are the UK VAT rates for goods and services:
Standard rate: 20%
The default VAT rate applies to the majority of goods and services, including digital goods. Unless a product is explicitly classified as being exempt or subject to a reduced or zero-rate, the 20% rate applies.
Common examples of items subject to the 20% VAT rate include:
- Electronics
- Adult clothing
- Software and digital products sold to consumers
- Professional services
- Hotel stays
- Restaurant meals
- Catering
- Alcoholic drinks
- Confectionery
- Crisps and savoury snacks
- Hot food
- Sports drinks
- Hot takeaways
- Ice cream
- Soft drinks and mineral water
- Most home improvements
Reduced rate: 5%
The reduced 5% rate is applied to a narrower category of goods and services than in most EU countries. Some examples of items taxed at the reduced rate include:
- Energy-saving materials permanently installed in dwellings and buildings
- Mobility aids for the elderly
- Smoking cessation products
- Electricity, gas, heating oil, and solid fuel for domestic and residential use or for non-business use by a charity
- Oil-fired boilers, radiators, closed fuel solid cassettes, and certain other heating equipment
- Children’s car seats
Zero rate: 0%
Zero-rated supplies are not exempt, but are taxed at 0%. This is an important distinction. When an item is zero-rated, suppliers will charge buyers a 0% tax, but the item is not outside the VAT system, so the company can still reclaim input VAT.
Examples of zero-rate items include:
- Food for home consumption
- Children's clothing and footwear
- Books, newspapers, and magazines, including e-books
- Printed music
- Prescription medications and drugs
- Export of goods outside the UK
- Most public transport fares
- New residential housing
- Installing ramps or widening doors for disabled people in their homes
- Protective boots and helmets for industrial use
Exempt supplies
Exempt supplies are outside of the UK VAT system entirely. This means a business does not charge VAT to customers, but also cannot reclaim input VAT on purchases related to exempt activities.
Common examples include:
- Most financial services (including banking, lending, credit)
- Insurance
- Most healthcare and medical services provided by registered practitioners
- Most education and vocational training by eligible bodies
- Residential property lettings
- Royal Mail postal services
- Burial and cremation services.
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Registering for VAT in the UK
Companies cannot just begin collecting VAT in the UK. They must register first. And the specifics of when registration is required differ depending on whether your business is located in the UK or is selling goods and services to UK residents from outside of the country.
UK-based businesses: the £90,000 threshold
Businesses within the UK must register if:
- Total taxable turnover for the last 12 months goes over £90,000 (the VAT threshold)
- You expect your taxable turnover to go over £90,000 in the next 30 days
The UK uses a rolling 12-month period to determine if you must register for VAT. This means you must check your total taxable turnover at the end of each calendar month to determine if your last 12 months of turnover top £90,000. You can't wait until the end of the financial year.
As soon as your taxable turnover exceeds the threshold, you must notify HMRC within 30 days. You also have the option to register for VAT voluntarily if you are below the threshold. Many businesses choose to do so to reclaim input VAT, especially if they have large supply costs.
If your taxable turnover declines, you may deregister, but the deregistration threshold is £88,000.
Non-UK businesses: no threshold applies
Any business based outside of the UK is required to register immediately from the first taxable sale. If you supply any goods or services into the UK or expect to within the coming 30 days, you are subject to registration requirements. This includes businesses that:
- Sell goods physically located in the UK at the time of sale
- Provide digital services directly to UK consumers, including SaaS, apps, streaming, e-learning materials, or downloaded software
- Store inventory in UK fulfillment centers, including Amazon FBA or third-party 3PLs
- Import goods into the UK in consignments of £135 or less and sell them directly to consumers
- Organize live events, exhibitions, or conferences in the UK where attendees pay admission fees
How to register
You may register for VAT online on the HMRC services website. The specifics of what you need depend on whether you are registering a limited company, or if you are registering as an individual or a partnership. You may need to provide:
- Your company's registration number if you're a limited company
- Your business bank account details
- Your Unique Taxpayer Reference (UTR)
- Details about your annual turnover and an estimate of annual turnover in the coming 12 months
- Your self-assessment
- Your corporate tax
- Your PAYE
In some cases, you must register via post, including if you are:
- A limited liability partnership (LLP) registering as a representative member of a VAT group
- Registering the divisions or business units of a corporate body under separate VAT numbers
- Applying to register an overseas partnership
- A local authority, parish or district council
- Applying for a registration exception
- An insolvency practitioner applying to register a business
While many EU countries require foreign sellers to appoint a local fiscal representative to register, the UK does not generally require this. However, companies outside of the UK may choose to get help with registration and compliance from a UK tax agent.
Whether you register via post or online, once you have registered, the UK will issue a VAT registration number in the following format:
- GB followed by 9 digits (e.g., GB123456789).
This number must appear on all VAT invoices.
Registration generally takes between 30 and 40 working days. Companies must collect and account for VAT from the effective date of registration, even though they are waiting for their certificate to arrive.
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UK VAT after Brexit
In 2016, the UK voted to leave the European Union. On January 1, 2021, the transition period ended, and the departure formally occurred. Brexit resulted in major changes, as the UK formally left the EU single market and customs union.
Prior to the UK leaving the EU, companies could manage UK and EU tax compliance together under shared EU rules, including taking advantage of the EU's One-Stop Shop (OSS) and Import One-Stop Shop (IOSS).
OSS and IOSS make it possible to register in a single EU member state, file a single report, and remit a single payment. Unfortunately, both cover only EU member states, so since the UK is no longer in the EU, you can no longer use either scheme to fulfill UK VAT requirements.
Now, there are two separate compliance processes required: Businesses selling into both the UK and the EU generally must comply separately with UK VAT rules and EU VAT rules. This means that:
- Businesses selling into the UK (including those located in the U.S. or EU member states) are subject to registration requirements for UK VAT and must comply with UK filing and invoicing requirements.
- Businesses selling into EU member states must register for EU VAT, potentially using the Import One-Stop Shop (IOSS) or One-Stop Shop (OSS) systems, and comply with EU VAT rules.
Because of Brexit:
- UK businesses selling into the EU are now treated as non-EU sellers. They must follow all the EU VAT rules that apply to businesses established outside the EU.
- EU businesses selling goods into the UK are subject to UK import VAT rules. These apply regardless of origin. For consignments valued at £135 or less that are outside the UK at the point of sale and sold directly to UK consumers, VAT is generally charged at the point of sale. For consignments above £135, import VAT and possibly customs duties may apply at the time of importation.
When to charge UK VAT
If you are selling to UK customers, you must know when to charge UK VAT. Here's what you need to know.
B2C sales
When you sell directly to consumers in the UK, you must charge the correct amount of VAT at the rate that applies to the goods or services. EU businesses, UK businesses, and non-EU sellers are all expected to charge VAT once they have registered.
Because digital services are taxable in the UK, those who sell digital-only products are also expected to charge VAT at the 20% rate. This includes SaaS subscriptions, streaming services, downloadable software, online courses, and e-books sold through a digital platform.
No registration threshold applies for nonresident businesses selling digital services in the UK. VAT must be collected and remitted from the first sale.
B2B sales
If you are selling to a business, the rules work differently because of the reverse charge mechanism. This shifts the responsibility for VAT accounting from the supplier to the customer. This can happen under:
- The domestic reverse charge mechanism
- The reverse charge mechanism for cross-border services (which is governed under place-of-supply rules)
The domestic reverse charge mechanism is designed to counter fraud in industries with an elevated fraud risk. It applies to shift VAT accounting to the customer in specific transactions, including:
- Construction services under the Construction Industry Scheme
- Mobile phone and computer chip supplies valued at £5,000 or higher
- Wholesale gas or electricity supplies
The reverse charge mechanism also applies to cross-border B2B sales when a non-UK business or overseas supplier supplies services to a UK VAT-registered business.
Under the UK's reverse charge rules, UK recipients of services from a non-UK supplier are subject to the reverse charge mechanism when:
- The UK is the place of supply
- The supplier belongs outside the UK
- The buyer belongs in the UK
- The supply is not exempt from VAT
- The buyer is VAT registered in the UK
Almost all non-UK B2B suppliers are subject to the reverse charge mechanism under the place of supply rules. The non-UK supplier won't charge UK VAT on the invoice. Instead, the UK customer accounts for the VAT by recording both output VAT and input VAT on its VAT return.
This means the customer effectively self-assesses the VAT due on the transaction.
Marketplace and import rules
Marketplace facilitator rules exist in many parts of the world, including in the United States and the UK. These laws make platforms like Amazon, eBay, Etsy, and Not On the High Street, responsible for sales tax in the U.S. or VAT collection in the UK in certain circumstances.
Under the UK’s online marketplace (OMP) rules, marketplaces can become "deemed sellers" responsible for tax compliance if they play a meaningful role in facilitating sales, such as managing storefront listings or processing customer payments for third-party sellers.
The UK's law has been in place since 2021, but it applies only in certain circumstances, so those who sell on marketplaces must understand the rules. Specifically:
- The marketplace facilitating the sale is the deemed supplier responsible for collecting and remitting VAT when goods valued at £135 or less are sold to UK customers and are located outside the UK at the point of sale.
- The marketplace may also become responsible for VAT in some sales made by overseas sellers when the goods are already located in the UK.
- In other situations, including in sales involving UK-established sellers or imported goods valued above £135, the underlying seller remains responsible for VAT obligations.
Non-UK sellers who store inventory in the UK are typically required to register for VAT, regardless of the £135 threshold, as a result of the fact that the goods are physically in the UK already at the point of sale. Their presence creates a UK VAT registration obligation.
Staying compliant with UK VAT
It is important to understand and fulfill all of your UK VAT obligations if you are selling products or services to customers within the United Kingdom. Here are some of the key things you need to keep in mind when you're collecting and remitting tax.
Making Tax Digital for VAT
On April 1, 2022, HM Revenue and Customs issued a notice called "Making Tax Digital for VAT." The Notice explained that all VAT-registered businesses are required to keep digital records and file VAT returns using digital software. This is true for companies of all sizes.
The software must have a digital link to be compliant, which means that you must use software that can:
- Keep and maintain all records required by VAT regulations
- Prepare VAT returns based on the information kept in the digital records.
- Use an Application Programming Interface (API) to communicate with HMRC's systems.
You are not allowed to just manually re-key figures from a spreadsheet into filing software, and HMRC conducts compliance checks to confirm the use of appropriate software with a digital link to HMRC.
Compliance checks are increasing in 2026, so businesses must ensure they have the right programs. Compatible options include:
- Xero
- QuickBooks
- Sage
- Specialist VAT compliance programs
If your digital records are up to date, the software will be able to collate and prepare your return for you. It will show you the return, and you will just have to:
- Declare that the information is correct
- Confirm you want it submitted to HMRC
Making Tax Digital (MTD) is a material change to the rules that must fundamentally change your accounting and tax compliance process if you previously used software with no digital link to the HMRC's VAT filing system.
Invoicing requirements
HMRC requires VAT invoices for all B2B transactions where you charge VAT, while full VAT invoices must be provided upon request for all B2C transactions over £250.
According to the UK government, you must issue a VAT invoice whenever you supply standard-rate or reduced-rate goods or services to another VAT-registered person or company, and the invoice must normally be issued within 30 days of the date you make the supply.
VAT-compliant invoices must include:
- A unique identification number
- Your company name, address, and contact information
- The company name and address of the customer you’re invoicing
- A clear description of what you’re charging for
- The date the goods or service were provided (supply date)
- The date of the invoice
- The amount(s) being charged
- VAT amount if applicable
- The total amount owed
You must also put your VAT registration number, the VAT rate applied, the net (pre-VAT) amount, the VAT amount, and the gross total.
Simplified invoices, which require less detail, are allowed only for B2C retail transactions under £250.
While some countries require e-invoicing using a government portal, like Italy's mandatory SdI e-invoicing system, the UK doesn't have this mandate in place.
Filing VAT returns and deadlines
For most businesses, the accounting period is every three months (quarterly). However, monthly returns are allowed for regular repayment traders, and some companies may be directed to submit monthly or annual returns when necessary to protect the revenue.
You must submit your return and pay HMRC one calendar month and seven days after the end of an accounting period, including allowing time for the payment to reach HMRC's account. Here's what this schedule looks like for most companies:
Record-keeping
VAT records must be kept for a minimum of six years, and in some cases for up to 10 years for transactions involving land and property.
Most records must be kept digitally under the Making Tax Digital for VAT rules. They often must be kept using functional compatible software, but some records must be kept and preserved in their original form, including a C79 (import VAT certificate).
Records you must keep include:
- Copies of all VAT invoices issued and received
- Import and export documents
- VAT return submissions
- Any correspondence with HMRC about VAT
You must be ready to produce these records upon request from HMRC.
HMRC's penalty system
The HMRC's old VAT surcharge penalty system was replaced in January 2023 with a new points-based penalty system. Under the new system:
- Each missed filing deadline earns you one penalty point
- Once you get a specific number of penalty points based on your filing period (four points for quarterly filers), you're assessed a £200 fine for each subsequent late submission.
If you don't pay VAT on time, you will also owe late payment interest starting from the date the payment was due. It’s calculated at the Bank of England base rate plus 4%.
There are also late registration penalties. The minimum is £50, but the penalties depend on how late you are when you register.
Finally, when you make an error in your returns, the penalties total:
- Up to 30% of the underpaid VAT for careless errors
- Up to 70% for deliberate errors
- Up to 100% for deliberate concealment.
How Numeral handles UK VAT
If you are selling into the UK, you must figure out how to manage all of these tax obligations yourself.
This means getting rates right across different product categories, tracking when you must register, filing MTD-compliant returns on schedule, and staying on top of post-Brexit rules.
Or you can turn to Numeral for help. Numeral takes care of everything for you, automating all of the parts of UK VAT compliance that create the most risk for your business. Numeral will:
- Apply the correct VAT rate: Numeral's tax engine integrates with your sales and accounting platforms to charge the correct rate on every transaction, whether that's 20%, 5%, 0%, or exempt. Calculations are performed in real-time based on product type and customer location.
- Monitor your UK sales activity: Numeral will monitor transactions and alert you when registration is required, before liability accrues.
- Register for you: Numeral takes care of registration in the UK, which is necessary from the first taxable sale if you are an EU or US-based business, since there is no registration threshold.
- File and remit returns on your behalf: Numeral will prepare MTD-compatible VAT returns and take care of your filing and remittance obligations on your required schedule.
A tax expert reviews every return before it's submitted to ensure accuracy, and every service is backed by the Numeral Guarantee. If we make an error that leads to late filing fees or penalties in an audit, we'll cover the costs.
Numeral offers all this and more, including virtual mailboxes to manage correspondence for you from taxing authorities. And our pricing is transparent.
Get started or book a demo with Numeral to learn more about how we can help you with UK VAT compliance.
UK VAT FAQs
Still need to know more? Here are the answers to frequently asked questions about VAT in the UK.
What is the standard VAT rate in the UK?
The UK charges a standard 20% VAT rate on most goods and services, including digital goods. A reduced 5% rate applies to some items, including things like car seats and home energy, and a 0% rate applies to some goods and services like food at home and kids' clothing. There are also exempt items, including most financial and property transactions and postage stamps.
Do I need to register for UK VAT if my business is outside the UK?
If your business is outside the UK and you sell to any UK customers, there is no registration threshold. You must register starting from your first taxable sale. This is true even for digital goods. You also must register if you store inventory in the UK. You must register before you start selling and you face late registration penalties if you don't.
What is Making Tax Digital (MTD) for VAT?
Making Tax Digital (MTD) is a mandatory program that's been in place since April 2022 for all VAT-registered companies in the UK, regardless of turnover. It requires businesses to maintain digital records via compatible software with a direct link to HMRC's systems to allow automated transfers of data. You cannot manually enter your VAT figures into HMRC's systems.
How often do I need to file a UK VAT return?
Most companies must file a UK VAT return quarterly, with the return due one month and seven days after the end of each accounting period. For example, a quarter ending March 31 has a May 7 deadline. Monthly filing is an option for some companies, or may be required to protect the revenue in certain circumstances.
Does the EU's One-Stop Shop apply to UK VAT?
Participation in the EU's One-Stop Shop or Import One-Stop Shop does not make you compliant with UK VAT. The UK left the EU VAT system on January 1, 2021, so it now has a separate compliance system. You must register separately in the UK, follow the UK's tax rules, and file and remit payments directly to HMRC.
What are the penalties for not registering for UK VAT when required?
The minimum late registration penalty for not registering for UK VAT is £50. Penalties include 5% (registering <9 months late), 10% (9 months to 18 months late), and 15% (more than 18 months late). These penalties are charged on the VAT you should have collected. You will also have to pay the VAT you owe, plus interest.
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