How much is VAT in the UK? A small business guide

VAT (Value Added Tax) is one of those topics that feels simple - until you have to set prices, raise invoices, and work out whether you need to register. For small businesses, the usual problems aren’t “forgetting VAT exists”. They’re charging the wrong rate, misunderstanding what counts towards the VAT threshold, or assuming that “no VAT” always means the same thing.

This guide explains the current VAT rates in the UK, what they mean in practice for pricing and invoicing, and the key checks to make before you decide whether to register.

The UK VAT rates: the numbers most businesses need

The UK doesn’t have a single VAT rate for everything. VAT rates depend on the type of supply you’re making - meaning one business can legitimately sell different products or services at different VAT rates.

The main rates are:

• The standard rate: 20% (applies to most goods and services)
• The reduced rate: 5% (applies to certain categories, such as domestic fuel and power and children’s car seats)
• The zero rate: 0% (applies to “zero-rated” supplies, with common examples including most food and children’s clothes)

If you’re not sure which rate applies to something specific, HMRC publishes category guidance showing which goods and services are standard-rated, reduced-rated, zero-rated, exempt, or outside the scope of VAT.

Zero-rated vs exempt: why “no VAT charged” can mean two different things

A lot of small business confusion comes from mixing up zero-rated and exempt supplies. To the customer, they often look the same (no VAT is added). But legally they’re different - and the difference affects registration and what VAT you can reclaim.

A taxable supply is any supply that is not exempt from VAT, and that includes zero-rated supplies. This matters because zero-rated sales still sit inside the VAT system.

By contrast, exempt supplies are not taxable for VAT. If your business makes exempt supplies, the VAT recovery position changes - and if all (or almost all) of what you sell is exempt, you generally won’t be VAT-registered and you usually can’t reclaim VAT on costs related to those exempt supplies.

In the real world, many businesses are mixed (some taxable, some exempt), which can bring in partial exemption rules - one of the most common reasons VAT becomes “get advice” territory.

VAT registration: when it becomes mandatory (and when it can be strategic)

VAT registration becomes mandatory once your taxable turnover goes over the threshold.

You generally must register if your taxable turnover for the last 12 months is more than £90,000. “Taxable turnover” means the total value of everything you sell that is not exempt (so it can include standard-rated, reduced-rated and zero-rated supplies).

There’s a second trigger that catches growing businesses: you also have to register if you expect your taxable turnover to exceed £90,000 in the next 30 days alone.

The deadline and the effective date (very practical)

Once you go over the threshold, you generally need to register within 30 days of the end of the month in which you exceeded it.

Your VAT registration usually takes effect from the first day of the second month after you went over the threshold. This is important because it affects when you need to start charging VAT and issuing VAT invoices.

If you’re already VAT-registered, the deregistration threshold is generally £88,000.

Voluntary registration

You can register voluntarily below the threshold. This can make sense if most of your customers are VAT-registered businesses (who can usually reclaim VAT), or if you have significant VAT on your costs and want to reclaim it. It can be less attractive if you mainly sell to consumers and VAT would push your prices up.

Pricing and invoicing: how VAT changes your numbers

VAT becomes most real when you decide how to quote and invoice. Many small businesses trip over VAT simply because they don’t consistently use “VAT-exclusive” and “VAT-inclusive” pricing.

If you quote £1,000 + VAT, you’re quoting a net price and VAT will be added on top. If you quote £1,200 including VAT, you’re quoting a gross price and VAT is included in the figure.

A practical tip is to be consistent across your website, proposals and invoices. In many B2B industries, “+ VAT” is standard. In consumer-facing contexts, pricing is usually displayed as “including VAT”. Either approach can work - the key is that customers understand what they’re paying and you’re not unintentionally underquoting.

Where small businesses most often get VAT wrong

Most VAT errors don’t come from bad intent - they come from edge cases.

A common example is where a business sells multiple items together and assumes the whole bundle takes one VAT rate. Another is where the VAT rate depends on facts, such as how something is supplied, how it’s packaged, or whether it is treated as goods versus services.

If you’re in a sector where VAT treatment affects your pricing or margin, it’s worth checking the relevant HMRC guidance before you commit to a pricing model.

When it’s worth getting advice

For many straightforward businesses, VAT is manageable with good bookkeeping, consistent quoting, and a clear understanding of when registration is triggered.

Advice is typically most valuable where classification is unclear or where your business model makes VAT more complicated - for example, mixed taxable and exempt income (partial exemption), property and construction, health or education-related services, or online sales structures where multiple parties are involved.

If you would like a consultation on your VAT obligations, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.