UK VAT rates 2026/27 are simple on paper: 20% standard, 5% reduced and 0% zero rate. But applying the wrong rate to your invoices is one of the most common HMRC compliance mistakes freelancers make. This guide explains exactly what each rate covers, shows you how to calculate VAT on your prices, and tells you when you have to charge it at all.
Rates last reviewed: October 2026, against HMRC guidance on UK VAT rates.
What Are the UK VAT Rates in 2026/27?
The UK has three VAT rates: the standard rate of 20% that applies to most goods and services, the reduced rate of 5% for essentials like domestic energy and children’s car seats, and the zero rate of 0% for basics like most food, books and children’s clothes. A fourth category, VAT-exempt supplies such as insurance and education, falls outside the VAT system entirely.
These rates have not changed for years: the standard rate has been 20% since January 2011, and the rates were unchanged for 2025/26 and remain unchanged for 2026/27. That stability is good news, but it also means there is no excuse for getting them wrong.
You only ever charge VAT if you are VAT-registered. If you are not registered, you charge nothing, add nothing to your invoices, and the rates below simply do not apply to you. We will cover the registration rules later in this guide.
The Standard 20% Rate: What It Covers
The 20% standard rate is the default. If a good or service is not specifically listed as reduced, zero-rated or exempt, it is standard-rated. For freelancers, almost everything you sell is standard-rated: design, copywriting, web development, consultancy, video editing, software, marketing services and digital products.
Other everyday examples of standard-rated items:
- Adult clothing and footwear
- Electronics, phones and computers
- Restaurant meals, takeaway food (hot takeaway food is standard-rated; cold takeaway food is usually zero-rated)
- Alcohol, soft drinks and confectionery
- Car repairs, taxi fares and parking charges
Tip: When you are unsure which rate applies to something unusual, check HMRC’s VAT rates pages before you invoice. Charging the wrong rate means either overcharging your client (which looks bad) or underpaying HMRC (which is worse). Our VAT calculator runs the arithmetic for whichever rate you select.
The Reduced 5% Rate: Essential Goods and Services
The 5% reduced rate applies to a short list of goods and services the government treats as essential or socially important. Most freelancers will rarely invoice at 5%, but you may buy reduced-rated items for your business.
The main categories, per HMRC, are:
- Domestic fuel and power: gas, electricity, heating oil and other fuel for your home, charged at 5%
- Energy-saving materials: insulation, draught proofing, and other energy-saving products installed in residential homes
- Children’s car seats: car seats, carrycots and safety seats for children
- Mobility aids: certain mobility aids for older people
- Smoking cessation products: nicotine patches and gum
- Contraceptive products
Notice what is not on the list: most business services. If a freelancer tells a client their invoice is “VAT at 5%”, that is almost certainly wrong. Standard-rate services do not become reduced-rate just because the client is a charity or because the work feels essential.
The Zero Rate: 0% but Still in the VAT System
Zero-rated goods are charged at 0%, so the customer pays no VAT. Crucially, zero-rated items are still inside the VAT system: you report them on your VAT return, and you can reclaim the input VAT you paid on your related costs. That is what separates zero-rated from exempt.
The biggest zero-rated categories include:
- Most food (basic groceries, not restaurant or hot takeaway food, not confectionery)
- Books, newspapers, magazines and certain qualifying e-publications
- Children’s clothing and footwear
- Prescription medicines
- Public transport fares (bus, train, domestic flights)
- Exports of goods outside the UK
- Domestic water and sewerage services
Watch out: “Zero-rated” and “VAT-free” are not the same as “no paperwork”. If you sell zero-rated items as a VAT-registered business, you must still record and report them on your VAT return. Forgetting to report zero-rated sales is a classic small-business mistake.
Zero-Rated vs Exempt: Why the Difference Matters
Zero-rated and exempt supplies both mean the customer pays 0% VAT, so it is easy to mix them up. The difference that matters to you is on the cost side: if your supplies are zero-rated, you can reclaim the VAT you paid on your business expenses; if your supplies are exempt, you cannot reclaim it at all.
Common VAT-exempt supplies include:
- Insurance and financial services
- Education and training (in most cases)
- Health services
- Postal services
Take two freelancers, each spending £1,200 plus VAT (£240) a year on software and equipment. The book designer selling zero-rated books can reclaim that £240 from HMRC. The insurance consultant selling exempt financial services cannot, so that £240 is simply part of their costs. Same spend, £240 difference in real money.
If you sell a mix of taxable and exempt supplies, you are “partially exempt” and special input-VAT rules apply. This is genuinely complex territory: get an accountant involved rather than guessing.
How to Work Out VAT on Your Prices (With a Worked Example)
There are two directions you will need, depending on whether you quote VAT-exclusive or VAT-inclusive prices.
Adding VAT to a net price. Multiply the net price by 1.20 for the standard rate. A freelancer billing £2,000 for a website project adds £2,000 × 20% = £400 VAT, and invoices the client £2,400 gross. The £400 is collected on HMRC’s behalf, not income; you pay it over on your VAT return, minus any VAT you can reclaim on your own costs.
Extracting VAT from a gross price. Divide the gross price by 1.20. If you sell a course for £120 including VAT, the net amount is £120 ÷ 1.20 = £100, and the VAT element is £120 − £100 = £20. The common mistake is taking 20% of the gross (£24), which overstates the VAT.
Here is the full picture for a typical quarter, using the standard rate:
| Line | Calculation | Amount |
|---|---|---|
| Client invoices issued (net) | 5 projects × £2,000 | £10,000 |
| Output VAT charged to clients | £10,000 × 20% | £2,000 |
| Business expenses (net) | Software, laptop, coworking | £2,500 |
| Input VAT reclaimed | £2,500 × 20% | £500 |
| VAT bill for the quarter | £2,000 − £500 | £1,500 |
This is the core of the VAT system: you are a collection point, not the payer. Your real VAT cost is the difference between the VAT you charge and the VAT you reclaim, which is why registering voluntarily can make sense even below the threshold if your clients are mostly VAT-registered businesses and your costs carry VAT.
Run your own numbers with LancerBill’s VAT calculator, then produce a compliant document with our free invoice generator, which itemises net, VAT and gross amounts automatically.
Working for Irish clients instead? Our Ireland VAT rates guide covers the 23, 13.5, 9, 4.8 and 0 percent rates, the add and remove formulas, and the Irish registration thresholds.
When Do You Have to Charge VAT?
You must register for VAT when your taxable turnover exceeds £90,000 in any rolling 12-month period (the threshold since 1 April 2024), or when you expect to exceed £90,000 in the next 30 days alone. Once registered, you must charge the correct rate on every taxable invoice, include your VAT registration number on each invoice, file VAT returns (usually quarterly under Making Tax Digital rules), and keep VAT records for at least six years.
You can also register voluntarily below £90,000. This is worth considering if you sell mainly to VAT-registered businesses (they reclaim the VAT, so your 20% does not make you more expensive to them) and you want to reclaim VAT on your own costs. It is usually a bad idea if you sell directly to consumers, because your prices instantly become 20% dearer than an unregistered competitor’s.
The deregistration threshold is £88,000: if your taxable turnover falls below this, you can apply to deregister and stop charging VAT.
For a fuller walkthrough of the registration decision, read our guide on whether freelancers need to charge VAT in the UK.
Common VAT Rate Mistakes Freelancers Make
These are the errors HMRC sees again and again from small businesses and freelancers:
- Charging VAT without being registered. If you are not VAT-registered, you must not add VAT to your invoices, not even “just 20% because the client expected it”. The VAT you collect illegally has to be paid to HMRC, plus penalties.
- Using the wrong rate for food. Cold takeaway sandwiches are zero-rated; a hot takeaway meal is standard-rated. If you invoice catering, check the exact supply, not the general vibe.
- Forgetting exports are zero-rated. Selling goods to customers outside the UK is normally zero-rated, which means you can still reclaim your input VAT. Many small sellers overcomplicate this and overpay.
- Treating exempt as zero-rated. Selling exempt services (say, insurance advice) and then reclaiming all your input VAT is exactly backwards: exempt suppliers cannot reclaim.
- Leaving late payment charges off the VAT maths. If you charge statutory interest or compensation on an overdue invoice, the VAT treatment follows the original supply. Work the numbers properly with our late payment fee calculator.
Rule of thumb: the standard 20% rate is the default for freelancer services. If you think a lower rate applies to what you sell, verify it on GOV.UK before you invoice. HMRC’s “better safe than sorry” is not a strategy, but “check the rate before invoicing” is.
Key takeaways
- The UK has three VAT rates: 20% standard, 5% reduced and 0% zero rate. Exempt supplies sit outside the system.
- Almost everything freelancers sell (design, writing, development, consultancy) is standard-rated at 20%.
- Zero-rated and exempt both mean 0% to the customer, but only zero-rated sellers can reclaim input VAT.
- Extract VAT from a gross price by dividing by 1.20, not by taking 20% of the gross.
- You must register for VAT once taxable turnover exceeds £90,000 in any rolling 12 months; below that, registration is voluntary.
- Rates last reviewed: October 2026 against HMRC guidance.
Frequently Asked Questions
What is the current UK VAT rate in 2026?
The standard UK VAT rate is 20% and applies to most goods and services, including nearly all freelance services. There is also a reduced rate of 5% for essentials such as domestic energy and children’s car seats, and a zero rate of 0% for basics such as most food, books and children’s clothes. The rates are unchanged for 2026/27.
Do freelancers charge 20% VAT on their invoices?
Only if they are VAT-registered. VAT-registered freelancers charge 20% on most services, because almost all freelance work is standard-rated. Unregistered freelancers must not charge any VAT at all. Registration becomes compulsory once taxable turnover exceeds £90,000 in any rolling 12-month period.
What is the difference between zero-rated and exempt VAT?
Both mean the customer pays 0% VAT. The difference is on the seller’s side: zero-rated businesses remain in the VAT system, report the sales on their VAT return, and can reclaim input VAT on their costs. Exempt businesses fall outside the system and cannot reclaim input VAT at all.
How do I calculate 20% VAT on a price?
To add VAT to a net price, multiply by 1.20: £2,000 net becomes £2,400 gross. To extract VAT from a gross price, divide by 1.20: £120 gross contains £100 net and £20 VAT. LancerBill’s VAT calculator does both directions instantly.
Can I charge the reduced 5% VAT rate on freelance services?
Almost certainly not. The 5% reduced rate covers a specific list (domestic energy, children’s car seats, energy-saving materials, mobility aids, smoking cessation and contraceptive products). Standard business and freelance services are 20%. Charging 5% on a standard-rated service underpays HMRC and can trigger penalties.
For the full method in both directions, see our guide on how to calculate VAT, including the VAT fraction and the divide-don’t-subtract mistake. To look up VAT on common amounts without calculating, use our VAT ready reckoner at 20 and 5 percent.
This guide is for general information only and is not financial, tax or legal advice.