What VAT rate applies to what
There are three VAT rates and one category that is not a rate at all. Most of the confusion in UK VAT comes from that last one, and from a food rule whose exceptions are longer than the rule.
Updated 11 September 2026 · Tax year 2026/27
The three rates, and exempt #
| Category | Rate | Counts towards the VAT threshold? | Can you reclaim input VAT? |
|---|---|---|---|
| Standard | 20% | Yes | Yes |
| Reduced | 5% | Yes | Yes |
| Zero rated | 0% | Yes | Yes |
| Exempt | No VAT | No | No |
VAT on common goods and services #
| What | Rate | Note |
|---|---|---|
| VAT on food UK, cold and bought to take home | Zero | The general rule. Everything below is an exception to it |
| VAT on takeaway food and hot food | Standard | Heated so it can be eaten hot |
| VAT on restaurant food | Standard | Catering is standard rated whatever the food is |
| VAT on crisps and savoury snacks | Standard | A specific carve-out from the food rule |
| VAT on biscuits and confectionery | Standard | A plain biscuit is zero rated. The chocolate coating is the test |
| VAT on tea bags, coffee and cocoa | Zero | Treated as food |
| VAT on bottled water | Standard | Not treated as food, unlike tap water |
| VAT on beer, wine and spirits | Standard | All alcohol, wherever it is sold |
| VAT on energy bills and electricity, domestic | Reduced | 5% for household use |
| VAT on electricity and gas, business | Standard | Low-usage businesses can qualify for the 5% rate |
| VAT on water rates, domestic | Zero | Business water supplies are standard rated |
| VAT on fuel UK, including red diesel | Standard | Red diesel differs on duty, not on VAT |
| VAT on commercial property | Exempt | Unless the owner has opted to tax, or the building is under three years old |
| VAT on residential property | Exempt | The first sale of a new dwelling is zero rated instead |
| VAT on rental income | Exempt | Commercial rent becomes standard rated if the landlord opts to tax |
| VAT on building works | Standard | Qualifying new build is zero rated, some conversions are 5% |
| VAT on business rates | Outside | A tax, not a supply, so no VAT arises |
| VAT on cars, new and electric | Standard | Input VAT is usually blocked on a car in any case |
| VAT on used cars and used goods | Standard | Dealers often use the margin scheme, so VAT falls on the margin only |
| VAT on road tax | Outside | Vehicle Excise Duty is a tax, not a supply |
| VAT on taxi fares | Standard | Bus and train travel is zero rated |
| VAT on hotel rooms and accommodation | Standard | A reduction applies to stays over 28 days |
| VAT on car insurance and insurance premiums | Exempt | Insurance Premium Tax applies instead. It is not VAT and cannot be reclaimed |
| VAT on bank charges | Exempt | Financial services are exempt |
| VAT on school fees, private | Standard | Standard rated since 1 January 2025. Nurseries remain exempt |
| VAT on books and e-books | Zero | |
| VAT on delivery charges | Follows | Takes the same rate as the goods being delivered |
| VAT on service charges | Varies | A genuinely optional restaurant tip is outside the scope. A property service charge follows the lease |
| VAT on exports of goods outside the UK | Zero | Evidence of export is required |
| VAT on imports into the UK | Standard | Postponed VAT accounting puts it on the return |
| VAT on postage stamps, health and education | Exempt | Private school fees are the exception, see above |
Rates can depend on who supplies something, where, and how it is presented, so the table is the general position rather than a ruling on a particular sale. Where real money turns on it, check the specific HMRC notice for that category.
Travel, property services and utilities #
A few more that get searched for on their own. VAT on train tickets UK is zero rated, as is bus travel, while VAT on taxi fares is 20%: the mode of transport decides it, not the journey.
VAT on estate agent fees is standard rated at 20%, even where the property being sold is itself exempt. The agent is selling you a service, not the property.
VAT on gas and electric follows the domestic or business split described below, and VAT on food and drink follows the food rules: cold and taken away is zero rated, VAT on restaurant food UK and anything eaten in is 20%.
Can you reclaim it? A different question entirely #
Half the searches for VAT on something are not asking what rate applies. They are asking whether the VAT can be reclaimed, which is a separate question with separate rules. A cost can carry VAT at 20% and still be irrecoverable.
| Cost | Reclaimable? | Note |
|---|---|---|
| VAT on staff entertainment | Yes | Recoverable where it is genuinely for employees |
| VAT on client entertainment | No | Blocked outright, however business-related it was |
| VAT on leased cars | Half | 50% blocked where there is any private use, which is almost always |
| VAT on buying a car | Rarely | Only where there is genuinely no private use at all |
| VAT on a van | Yes | Vans are not caught by the car block |
| VAT on mileage claims | Partly | The fuel element only, and you need the fuel receipts to support it |
The entertainment split is the one that catches people. Taking your team out is recoverable. Taking a client out is not, no matter how clearly it was business. Put both through as one cost and the whole lot is at risk.
VAT on mileage claims is the other one worth getting right. Paying an employee the approved mileage rate lets you reclaim the VAT on the fuel element of that payment, but only if you hold fuel receipts covering it. No receipts, no reclaim, even though the mileage itself is perfectly valid.
VAT on food, and why it is such a mess #
VAT on food starts from a simple rule and then buries it. Most food bought to take home and eat cold is zero rated. Everything else is an exception.
- Hot food is standard rated, because it has been heated so it can be eaten hot.
- Eating in is standard rated. Catering is taxed on the service, not the ingredients.
- Confectionery is standard rated, which is where chocolate-covered biscuits live. A plain biscuit is zero rated.
- VAT on crisps and savoury snacks is 20%, by a specific carve-out.
- VAT on beer, wine and spirits is 20% wherever they are sold.
The chocolate-covered biscuit line is the famous one, and it is genuinely the test: the coating decides the rate. It is the reason cases about whether a product is a cake or a biscuit have reached tribunal more than once, and it is a fair warning that food VAT is not something to settle by intuition.
VAT on school fees #
VAT on private schools changed on 1 January 2025, and so did VAT on private school fees specifically. Education and boarding supplied by a private school became standard rated at 20%, removing an exemption that had stood for decades. Nurseries were not affected and remain exempt.
Anything written before that date says private education is exempt, and is now wrong. It is one of the clearest examples of why the date on a VAT page matters as much as what it says.
VAT on second hand goods and the margin scheme #
VAT on second hand cars and VAT on second hand goods generally is the one case where the answer is neither a rate nor an exemption but a different way of calculating it.
Under the margin scheme a dealer charges VAT only on the difference between what they paid and what they sold for, not on the full selling price. The VAT is not shown separately on the invoice and the buyer cannot reclaim it, which is why a margin scheme invoice looks like it has no VAT on it at all.
That matters if you are buying: a van bought under the margin scheme carries no reclaimable VAT, while the same van sold on normal VAT rules does. Two identical vehicles at the same price can be several hundred pounds apart once recovery is taken into account.
VAT on property, rent and building works #
Property is the area where the exempt-versus-zero-rated distinction does the most damage, because the default is exempt and exempt blocks recovery.
VAT on commercial property is exempt unless the owner has opted to tax, which they often do precisely so they can recover VAT on refurbishment. VAT on residential property is exempt on sale or lease of an existing dwelling, while the first sale of a qualifying new dwelling is zero rated. VAT on rental income follows the same split: residential rent is exempt, commercial rent becomes standard rated once the landlord opts to tax.
VAT on building works is standard rated as a general rule. Qualifying new build housing is zero rated and some conversions attract the 5% rate. In construction the reverse charge sits on top of all of this, which is covered in reverse charge VAT.
VAT on electricity and gas #
VAT on electricity for a home is 5%. VAT on gas for a home is 5%. The same supplies to a business are 20%.
There is an exception worth knowing if you work from home or run something small: a business using only a low volume of energy can qualify for the 5% rate on the whole supply. Suppliers do not apply it automatically, so it has to be claimed by declaration. A small workshop or an office in an outbuilding is often paying 20% when it need not be.
VAT on disbursements, which is where people get caught #
This matters far more than the volume of searches suggests, because getting it wrong means systematically under-charging VAT across every job.
A genuine disbursement carries no VAT. To be one, all of the following have to be true: you paid as agent on your customer's behalf, the supply was to them rather than to you, they knew it was being bought for them, and you pass it on at exactly what you paid, separately itemised.
Anything failing that test is a recharge, and a recharge takes the VAT rate of your own supply. Travel, materials you bought in your own name, subsistence, congestion charges: these are almost always recharges, not disbursements, and they carry VAT at 20% even where the original cost carried none.
VAT on deposits #
A deposit that forms part of the price creates a tax point when you receive it. VAT is due on that VAT return, not on the one covering the final invoice. Taking a large deposit in one quarter for work delivered in the next brings the VAT forward.
A refundable security deposit, held against damage rather than paid for anything, is not consideration for a supply and carries no VAT until it is applied against something.
VAT on imports and exports #
Goods exported outside the UK are zero rated, provided you hold evidence that they actually left. That evidence requirement is not a formality: without it, HMRC treats the sale as standard rated and the VAT comes out of your margin.
Goods imported into the UK are standard rated. Most businesses now use postponed VAT accounting, which puts the import VAT on the VAT return as both output tax and input tax rather than paying it at the border and reclaiming it later. It is the same idea as the domestic reverse charge, applied to imports, and it is worth using because it removes the cash flow cost entirely.
The VAT exemption list #
What is VAT exempt, in practice? There is no single official VAT exemption list, but the exempt categories are short and stable: insurance, finance and credit, postage stamps, most health and medical treatment, most education and training, betting and gaming, subscriptions to certain membership bodies, and the sale or lease of most commercial land and buildings.
If your business makes VAT exempt supplies, that treatment is not optional and not something you elect into. It follows from what you sell. A business making both exempt and taxable supplies is partly exempt, and has to apportion its input tax between the two.
VAT exemption certificates and forms #
Searches for a VAT exemption certificate or a VAT exemption form usually mean one of two quite different things.
The common one is VAT exemption for disabled customers, properly called a VAT relief declaration: the form a disabled person or a charity signs to buy certain goods without VAT. The customer completes it, the supplier keeps it, and HMRC does not issue anything. It is a declaration of eligibility rather than a certificate of exemption.
The other is the VAT registration certificate, which is a different document entirely and confirms that you are registered rather than exempt from anything. That is covered in VAT registration.
There is no general certificate that exempts a business from VAT. If your supplies are exempt, they are exempt by their nature, and no paperwork changes that either way.
A few that get asked repeatedly #
VAT on services follows the same three rates as goods, and most services are standard rated. The exceptions are narrow and specific rather than general.
- VAT on insurance premiums: none. Insurance is exempt, though Insurance Premium Tax applies instead, which is a different tax at a different rate and cannot be reclaimed
- VAT on the M6 toll: standard rated, unlike most road tolls, because it is operated by a private company rather than under a statutory concession
- Financial services: generally exempt, which is why bank charges carry no recoverable VAT
Common questions #
What is the VAT on food?
Most cold food bought to take home is zero rated. Hot takeaway food, eating in, confectionery, chocolate-covered biscuits, crisps and alcohol are all standard rated at 20%. The zero rate is the general rule for food and the standard rate is a list of exceptions to it.
What is the VAT on electricity and gas?
Domestic electricity and gas are charged at the reduced rate of 5%. Business supplies are standard rated at 20%, though a business using only a small amount can qualify for the 5% rate.
What is the difference between zero rated and exempt?
A zero rated sale is taxable at 0%, so it counts towards your VAT threshold and you can still reclaim input VAT on your costs. An exempt sale is outside VAT altogether, does not count towards the threshold, and blocks input VAT recovery on related costs. Zero rated is better for a business.
Is there VAT on disbursements?
No, if it is a genuine disbursement: a payment made as agent on the customer's behalf, for something supplied to them rather than to you, passed on at exactly cost. If any of that fails it is a recharge, not a disbursement, and it takes the VAT rate of your own supply.
Is there VAT on a deposit?
Usually yes. A deposit that forms part of the payment creates a tax point when it is received, so VAT is due then rather than on final invoice. A refundable security deposit that is not consideration for a supply is different and carries no VAT until it is applied.
What VAT is charged on exports and imports?
Goods exported outside the UK are zero rated, provided you hold evidence of export. Goods imported into the UK are standard rated, and most businesses now use postponed VAT accounting so the import VAT goes on the return rather than being paid at the border.
What is a VAT exemption certificate?
That usually means a VAT relief declaration for goods bought by a disabled person or for a charity, where the customer signs to confirm they qualify. It is not a certificate HMRC issues to a business, and it is different from your VAT registration certificate.