In 2025, the standard VAT rate in the UK remains at 20%, consistent with previous years. However, depending on the goods or services involved, reduced rates or exemptions may apply. This creates a multi-tiered system where knowing the correct rate is crucial.
VAT affects businesses differently depending on whether they are VAT registered. If your business turnover exceeds the VAT threshold of £90,000 (as of 2025), registration is mandatory. Staying updated on these changes is essential to avoid penalties and manage your pricing strategy effectively.
The question “how much is VAT in the UK” is simple on the surface but gets complex when you dig into the details—especially if you operate across different sectors or sell internationally.
Breakdown of VAT Rates by Sector in 2025
Understanding how much is VAT in the UK requires going beyond the flat 20% rate. Different industries face different VAT treatments, which affects pricing, invoicing, and compliance. Below is a sector-by-sector breakdown of VAT rates in the UK for 2025.
Retail and E-Commerce
- Standard rate (20%) applies to most consumer goods including electronics, fashion, and luxury items.
- Zero-rated items include:
- Children’s clothing and footwear
- Most food and drink for human consumption (excluding items like confectionery, alcohol, and crisps)
- Printed books and newspapers (digital equivalents are also zero-rated)
Online retailers must manage complex VAT calculations, especially when:
- Selling goods that fall into different rate categories
- Shipping to or from overseas (import VAT, duty, OSS/IOSS schemes)
Hospitality and Tourism
The hospitality sector operates primarily under the standard 20% VAT rate. This includes:
- Hotel accommodation
- Restaurant meals
- Takeaway hot food and drink
There are some exceptions:
- Cold takeaway food (like sandwiches) is typically zero-rated
- Catering services are taxed at the standard rate regardless of the food type
The reduced rate (5%) introduced temporarily during the pandemic has not been retained in 2025.
Construction and Property
This sector has a mix of rates and exemptions:
- Zero-rated: New-build residential housing
- Reduced rate (5%): Energy-saving materials, some conversions and renovations of dwellings
- Standard rate (20%): Commercial property work, professional services (e.g. architectural, engineering)
If you’re a contractor or developer, getting the rate right on every invoice is vital. Mistakes are costly and often discovered during HMRC audits.
Education and Training
Most education services provided by eligible schools, colleges, and training providers are VAT exempt. However:
- Private tutoring and training that isn’t part of a regulated qualification may be standard-rated
- Training provided to businesses (B2B) is usually subject to 20% VAT
Knowing the difference between exempt and taxable education services is essential for schools, consultants, and e-learning platforms.
Health and Care
Health services are typically exempt from VAT if delivered by registered medical professionals. This includes:
- GP and dental care
- Hospital services
- Certain medical diagnostics
However, cosmetic surgery, wellness products, and non-essential treatments are usually taxed at the standard 20% rate.
Finance and Insurance
These services are largely VAT exempt, which presents a unique challenge—firms in this sector can’t reclaim VAT on most of their costs. This leads many financial firms to outsource or restructure parts of their business to manage unrecoverable VAT.
Charities and Nonprofits
Charities can benefit from various VAT reliefs, including:
- Zero-rating on donated goods sold in charity shops
- Reduced rate on certain building works
- Exemption on fundraising events
However, not all charity activities are exempt, and mistakes can jeopardise their VAT status. It’s crucial for organisations to track which activities are taxable and maintain clean records.