The Different VAT Rates in UK | MSF Associates

VAT, or Value-Added Tax, is a consumption tax placed on a good or service. The amount of VAT charged depends on the type of good or service, with different rates for different items. In the UK, there are three main VAT rates: standard rate, reduced rate, and zero rate.


Here's a quick overview of each:


  • Standard Rate: The majority of goods and services fall under the standard rate category, which is currently set at 20%.

  • Reduced Rate: Some items are eligible for a reduced VAT rate of 5% or 0%. These include energy-saving materials, children's car seats, and disability aids.

  • Zero Rate: A select few items are exempt from VAT entirely. These include books, newspapers, and children's clothing.


Knowing which rate to charge can be tricky for business owners, but it's important to get it right in order to avoid penalties from HMRC. This article will help you understand the different VAT rates in UK so that you can correctly price your products and services.


Standard Rate: 20%


The Standard Rate of Value Added Tax (VAT) within the United Kingdom is set at 20%, making it one of the highest VAT rates within Europe. Restaurant and takeaway businesses are among those that need to be more conscious of the Standard Rate, as they are subject to different VAT rules than other sectors. Restaurant and takeaway businesses have a mandatory responsibility to charge 20% on all goods and services that they provide, unless specifically stated otherwise by Her Majesty’s Revenue & Customs (HMRC). It is vital that businesses in this sector understand their obligations when it comes to billing customers with Value Added Tax.


Reduced Rate: 5%


Businesses based in the United Kingdom that supply goods and services are typically liable for Value Added Tax (VAT). However, certain supplies may be eligible for a reduced rate of 5%, depending on the type of goods or services. This reduced rate applies in particular to energy-saving materials and associated labour, environmental protection activities, children’s car seats and other products related to safety protection, comfort heating and mobility aids for disabled persons. Companies must carefully inspect their transactions to ensure they are correctly using the reduced rate when applicable in order to remain compliant with the UK's VAT rules.


Zero Rate VAT: 0%


Goods and services that are zero-rated for VAT provide restaurant and takeaway businesses a considerable cost saving, with the UK's Standard Rate of VAT at 20%. For restaurant owners, zero rate VAT applies to most foods, drinks, restaurant meals and takeaways in the UK. This 0% rate is also applicable for ingredients used to make food for sale at restaurants or takeaways, so restaurant and takeaway owners can save considerably on their restaurant's running costs by ensuring they are complying with the correct regulations.


Flat Rate Scheme


The Flat Rate Scheme (FRS) was introduced by HMRC to simplify the way small businesses handle the calculation of VAT, allowing them to pay a fixed rate depending on their type of business. As part of the FRS, companies registered for VAT in the UK pay a single flat rate percentage of their turnover to HMRC rather than having to estimate and record the amount using traditional methods. This makes it much easier for small businesses to understand and manage their VAT liabilities, with a single rate applying regardless of their trading output or expenses. Furthermore, businesses that meet certain criteria are able to benefit from an even lower rate as part of their Flat Rate Scheme registration.



While the rules of HMRC's VAT legislation are not always easy to understand, it is an important part of running a business. It is crucial to be properly prepared in order to remain fully compliant with UK tax law and taking advantage of any reduced or zero rates that may apply depending on your property portfolio's individual circumstances. The Standard Rate is 20%, the Reduced Rate 5% and the Zero Rate is 0%. Special exemptions do take place though they must meet strict criteria. Furthermore, there’s even the chance to sign up for the Flat Rate Scheme which offers VAT-registered businesses a simplified way to work out their dues.


Get in touch


Hopefully this blog post has helped you gain a better understanding of the UK's VAT rules so that you can confidently ensure your business remains compliant. But if you have any questions or would like to learn more about working with us, please give us a call on 0113 240 4100 or book a call with one of our experts.


Over the years, we have become one of the leading accounting firms in Leeds, working exclusively with food service businesses. Get in touch and together, we'll pave the way for your restaurant or cafe's continued growth and prosperity.