Value Added Tax (VAT) is charged on most goods and services in the UK. VAT-registered businesses collect it from customers, report it to HMRC, and can reclaim VAT paid on business purchases. This guide explains when to register, how the main rates and schemes work, and what Making Tax Digital means for VAT compliance.
Checked against GOV.UK guidance · last reviewed
Value Added Tax (VAT) is a consumption tax on most goods and services sold in the UK. When a business is VAT registered, it charges VAT on what it sells, keeps detailed records, and sends regular returns to HMRC.
The seller collects VAT from the customer and passes it to HMRC. The seller can also reclaim VAT paid on business-related purchases — materials, equipment, professional fees, and other qualifying costs. The net amount owed to HMRC is usually the difference between VAT charged on sales and VAT reclaimed on purchases.
VAT sits alongside other tax obligations. A sole trader still files Self Assessment for Income Tax; a limited company still files Corporation Tax. See the Corporation Tax guide for UK limited companies for rates, filing and deadlines. VAT is a separate registration, return cycle, and payment schedule.
Failing to register when required, charging the wrong rate, or submitting late returns can lead to penalties and interest. HMRC expects registered businesses to know when VAT applies, how to calculate it, and how to file on time.
VAT collected from customers belongs to HMRC, not the business. Until it is paid over on the return due date, it is effectively held on trust. Choosing the right VAT scheme — standard accounting, cash accounting, flat rate, or annual accounting — can change when VAT is due and how much admin is involved.
VAT-registered businesses must decide whether prices are quoted inclusive or exclusive of VAT. Display rules differ between business-to-business and business-to-consumer sales. Getting pricing wrong can erode margins or confuse customers.
Businesses that import, export, or sell to customers in other countries face additional VAT rules. Goods and services crossing borders may be zero-rated, subject to reverse charge, or require registration in another jurisdiction.
The current VAT registration threshold is £90,000 of taxable turnover in a rolling 12-month period. Taxable turnover is the total value of everything sold that is not exempt from VAT — it is based on sales, not profit.
A business must register if:
Registration should happen within 30 days of crossing the threshold. HMRC can charge backdated VAT and penalties if registration is late.
The threshold is reviewed periodically. Check the current figure on VAT registration thresholds at GOV.UK.
Businesses below the threshold can register voluntarily. This can make sense when:
Voluntary registration also brings obligations: charging VAT, filing returns, keeping digital records, and using approved software. Weigh the reclaim benefit against the administrative cost before registering early.
Registration is done online through GOV.UK. HMRC asks for details about the business, expected turnover, and when trading started or will start.
After registration, HMRC issues a VAT registration number. This must appear on invoices and be used when filing returns. The business is told which VAT accounting period applies — usually quarterly — and when the first return is due.
Full steps are on Register for VAT.
Different rates apply depending on what is sold. The main categories are:
| Rate | Percentage | Examples |
|---|---|---|
| Standard rate | 20% | Most goods and services |
| Reduced rate | 5% | Some home energy, children's car seats, mobility aids |
| Zero rate | 0% | Most food, children's clothes, books, new-build housing |
| Exempt | No VAT charged | Insurance, education, health services, some land and property |
| Outside the scope | Not a VAT supply | Wages, dividends, MOT tests, statutory fees |
Zero-rated supplies still count as taxable turnover for registration purposes. Exempt supplies generally do not count toward the registration threshold, but mixed businesses need careful analysis.
The full list is on VAT rates on different goods and services.
Several schemes simplify how VAT is calculated and reported. A business can use one scheme if it meets the eligibility conditions.
The default method. VAT is accounted for on the date of the invoice — whether or not payment has been received. Returns show output VAT on sales invoices and input VAT on purchase invoices for the period.
VAT is accounted for when money is received or paid, not when invoices are issued. This can help cashflow for businesses that wait a long time to be paid. The turnover limit for joining is £1.35 million.
The business pays a fixed percentage of turnover to HMRC and keeps the difference between what it charges customers and what it pays HMRC. Input VAT is not reclaimed except on certain capital assets over £2,000. Designed for small businesses with low purchase costs. The turnover limit for joining is £150,000.
VAT is paid in instalments during the year, with one annual return reconciling the figures. Reduces the number of returns but requires estimating liability in advance. The turnover limit for joining is £1.35 million.
Each scheme has entry and exit rules. Compare options on GOV.UK before choosing.
Since April 2019, all VAT-registered businesses must comply with Making Tax Digital for VAT (MTD for VAT). This means:
MTD for VAT applies regardless of turnover once registered. Software must connect to HMRC's systems to file returns digitally.
Guidance is on Making Tax Digital for VAT.
Most businesses file VAT returns every three months. Each return covers:
Returns and payment are usually due one calendar month and seven days after the end of the VAT period. For example, a return for the quarter ending 31 March is due by 7 May.
Deadlines and how to pay are on Submit a VAT Return.
VAT-registered businesses can reclaim VAT paid on goods and services used wholly for business purposes. Common reclaimable costs include:
VAT on items with mixed business and private use — such as a vehicle used personally — may be restricted or require apportionment. Entertainment expenses for clients are generally not reclaimable.
Keep invoices showing VAT separately. Without valid VAT invoices, HMRC may disallow a reclaim.
VAT registration is separate from Self Assessment. A sole trader can be registered for VAT while filing one Self Assessment return for Income Tax. VAT figures do not appear on the SA100 unless relevant to other income calculations, but good bookkeeping keeps both streams aligned.
See the sole trader Self Assessment guide for how personal tax fits alongside VAT.
A limited company registers for VAT in its own name. The company files VAT returns; directors do not file personal VAT returns unless they have a separate sole trade. Company VAT sits alongside Corporation Tax and PAYE obligations.
See the limited company director guide for how company and personal filings differ.
VAT rules are detailed, and errors can be costly. Many businesses use an accountant or bookkeeper to set up registration, choose a scheme, configure software, and file returns. HMRC also offers guidance and webinars for new registrants.
For official rules, start with the sources linked at the bottom of this page and the GOV.UK VAT collection.
HMRC has published a collection of videos and webinars to help sole traders and landlords prepare for Making Tax Digital (MTD) for Income Tax, covering.
Sole traders and landlords earning over £50,000 must submit their first Making Tax Digital (MTD) for Income Tax quarterly update by 7 August 2026.
HMRC has updated its guidance on commercial software suppliers that can be used to submit Self Assessment tax returns, supplementary pages and attachments.
Independent guidance. Not affiliated with HMRC or GOV.UK.
HMRC Tax Info is independent guidance, not tax, legal or financial advice, and is not affiliated with, endorsed by, or connected to HMRC or GOV.UK. Always check GOV.UK or speak to a qualified accountant or tax adviser for your own circumstances.