Value added tax — UK rates — Finance Wise Accounting

2026/27

VAT

VAT — bands and rates
Band	Rate	Notes
Over £0	20%	Standard
Over £0	5%	Reduced
Over £0	0%	Zero

Registration threshold£90,000
Deregistration threshold£88,000

2025/26

VAT

VAT — bands and rates
Band	Rate
Over £0	20%
Over £0	5%
Over £0	0%

Registration threshold£90,000

VAT rates and registration

VAT is charged on most goods and services at the standard rate, with reduced and zero rates for specific items. Businesses must register once taxable turnover passes the registration threshold, and can register voluntarily below it. Registered businesses charge VAT, reclaim it on eligible purchases and file returns under Making Tax Digital.

Choosing the right scheme (standard, flat rate, cash or annual accounting) can save time and money. Our VAT service handles registration, scheme advice and returns.

Registering, and the test people get wrong

The registration threshold is tested on a rolling twelve-month basis, not on your accounting year. You look back over any twelve consecutive months, and if the taxable turnover in them has crossed the threshold you have thirty days to register. There is also a forward-looking test: if you know a single month alone will take you over, registration is immediate.

Register late and you owe VAT on sales where none was charged, out of your own margin, plus penalties. It is the most expensive administrative mistake available to a small business.

Not everything is 20%

Standard, reduced and zero rates all exist, and some supplies are exempt — which is not the same as zero-rated. A zero-rated business charges 0% and reclaims its input VAT; an exempt business cannot reclaim at all. That distinction decides whether registering is an advantage or a cost.

Making Tax Digital

VAT records have to be kept digitally and returns filed from compatible software, with digital links between the records and the return. Retyping figures from a spreadsheet into a portal does not satisfy it, even where the numbers are right.

Frequently asked

When must I register for VAT?+

Once your VAT-taxable turnover exceeds the registration threshold in any rolling 12-month period, or if you expect to exceed it in the next 30 days. The current threshold is shown above.

What is the Flat Rate Scheme?+

A simplified scheme where you pay a fixed percentage of turnover instead of tracking VAT on every purchase. It suits some small businesses — we can check if it is right for you.

When do I have to register for VAT?+

When taxable turnover in any rolling twelve-month period crosses the threshold — not your financial year — and then within thirty days. There is also a forward test: if a single month will take you over on its own, registration is immediate. Registering late means paying VAT on sales that never carried it.

What is the difference between zero-rated and exempt?+

A zero-rated supply is taxable at 0%, so you charge nothing and still reclaim VAT on your costs. An exempt supply is outside the tax, so you charge nothing and cannot reclaim. For a business making exempt supplies, registration can be a cost rather than a benefit.

Can I still use a spreadsheet?+

Yes, but not on its own. Under Making Tax Digital the records must be digital and the return must be filed from compatible software with digital links throughout — retyping a figure from a spreadsheet into a portal breaks the chain even when the number is correct.