UK VAT Rates Explained: What Rate Applies to Your Business? (2026)
Not every business charges VAT at the same rate and getting it wrong on an invoice or VAT return can mean under- or over-charging clients, or errors on your VAT return that HMRC will query. Here's a practical breakdown of which rate applies to common small business sectors.
The Three UK VAT Rates
Standard rate — 20%: the default rate, applying to most goods and services unless specifically reduced, zero-rated or exempt.
Reduced rate — 5%: applies to a specific, narrow list of goods and services (e.g. domestic energy, certain energy-saving materials, children's car seats).
Zero rate — 0%: taxable, but at 0% — most food, books, children's clothing, and qualifying exports. Unlike exempt supplies, you can still reclaim input VAT.
Exempt: outside VAT entirely — financial services, insurance, education, health and medical services. If your income is exempt, you cannot register for VAT or reclaim input VAT on related costs.
VAT by Sector
Wholesalers and goods-based businesses
Most wholesale goods are standard-rated at 20%, though some categories (certain food, children's items, printed matter) are zero-rated. If you import stock, Postponed VAT Accounting can improve cash flow by letting you declare and reclaim import VAT on the same return rather than paying upfront.
Professional services and consultancies
Legal, accountancy, marketing and management consultancy services are standard-rated at 20%. There's no reduced category for professional services regardless of client type — the only exception is where a client is based overseas, where place-of-supply rules may mean no UK VAT applies at all.
Marketing and creative agencies
Standard-rated at 20% for UK clients. If you buy services from overseas suppliers (ad platforms, freelance contractors abroad), the reverse charge applies — you self-account for VAT rather than the supplier charging it.
Medical and private practices
This is the sector most likely to be VAT-exempt, not standard-rated. Most healthcare services delivered by registered professionals for the primary purpose of protecting, restoring or maintaining health are exempt from VAT. This means you can't reclaim input VAT on related purchases — worth factoring into pricing on equipment and premises costs. However, cosmetic or non-medical services, and goods sold alongside treatment, are often standard-rated — mixed-income practices need care in how they categorise each revenue stream.
Why Getting the Rate Wrong Is Costly
Charging the wrong rate means either overcharging clients (competitive disadvantage) or undercharging and owing HMRC the shortfall yourself, since VAT due is calculated on what should have been charged, not what was actually invoiced. For exempt or partially exempt businesses, misclassifying income can also mean incorrectly reclaiming input VAT you're not entitled to.
VAT Rate Checklist
What rate applies to each type of income your business generates?
If you have mixed income (e.g. exempt medical services plus standard-rated retail), are you splitting and recording this correctly?
Is your bookkeeping software set up with the correct VAT codes for each rate?
If you buy from overseas suppliers, is reverse charge VAT being applied correctly?
What This Means for Your Business
VAT rates aren't one-size-fits-all, and the right classification depends on exactly what you sell and to whom — not just your industry in general terms. Getting this wrong is one of the most common causes of VAT return errors and HMRC enquiries.
Vau Consult helps small businesses across sectors get VAT rates, registration and returns right from the start.
Book a free consultation to check your VAT set-up is correct.
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