UK VAT rates — 20%, 5%, 0% and exemption
Which rate applies when, and the broad UK zero-rated list.
The UK applies a three-tier VAT structure under the Value Added Tax Act 1994: standard rate 20% (most goods and services), reduced rate 5% (domestic energy, children's car seats, home insulation, mobility aids for older people, women's sanitary products zero-rated since 2021), and zero rate 0% (most food, children's clothes including teen sizes, books and newspapers including digital since 2020, public transport, prescription medicines). The UK's zero-rated list is one of the broadest in Europe — politically protected since VAT was introduced in 1973 — and is a key feature distinguishing UK VAT from EU VAT systems where these items would typically attract a reduced rate around 5-9%.
- Standard 20%: applies by default to most goods and services.
- Reduced 5%: domestic fuel, children's car seats, mobility aids, home insulation.
- Zero 0%: most food, children's clothes, books, newspapers, public transport (you can still reclaim input VAT).
- Exempt without credit: insurance, financial services, education, healthcare, postal services.
How it works
You classify each line of the invoice by the nature of the good/service. Standard 20% by default — most B2B services (consulting, software, manufacturing), most consumer goods (clothes for adults, electronics, alcohol, restaurant meals). Reduced 5% strictly for the listed items in the VAT Act Sch 7A — domestic fuel and power, children's car seats, mobility aids for elderly, home insulation, smoking cessation products.
Zero 0% is broader in the UK than most EU countries: most food (except restaurant/takeaway, alcohol, confectionery, hot food), all children's clothing including teen sizes up to specific measurements, all books and newspapers (including e-books and digital newspapers since May 2020 reform), public transport (bus, train, tube but not taxis), prescription medicines, sales of new residential property.
For mixed-rate invoices, separate the lines by rate and present per rate class the net amount and VAT amount distinctly. HMRC requires this presentation during a VAT compliance check.
Check the current rate on GOV.UK if in doubt. In 4invoices you enter the VAT rate for each line yourself; a mixed-rate invoice simply has lines at different rates.
You keep a record of how you chose each rate. 4invoices does not pick or apply the rate for you: you set the VAT rate on each invoice line. HMRC routinely checks the food and hospitality sector — wrong classification (e.g. hot takeaway food at 0% instead of 20%) triggers an additional VAT assessment, potential penalty up to 100% of underpaid VAT for deliberate errors, plus interest at base rate + 2.5%.
Legal references
- Value Added Tax Act 1994, Sch 7A — reduced rates.
- VAT Act 1994, Sch 8 — zero-rated supplies (food, books, transport, etc.).
- VAT Act 1994, Sch 9 — exempt supplies (insurance, finance, education, healthcare).
- Finance Act 2020 — extended zero rate to e-books and digital newspapers.
Frequently asked questions
Why is takeaway food sometimes 20% and sometimes 0%?
The hot/cold split. Hot takeaway food is 20% (treated as a catering service). Cold takeaway food is typically 0% (treated as food sale). The classic example is a fish and chips shop where the fish and chips are 20% (hot) but a chocolate bar and bottled water sold alongside are 0% (cold food not specifically excluded). The 'hot' test is whether the food has been heated to be eaten hot — a freshly baked but cold sandwich is 0%, the same sandwich toasted is 20%.
Are children's clothes really all zero-rated?
Yes for items meeting HMRC's size definitions — designed for children under 14, and within specific maximum measurements (chest 32 inches max, waist 26 inches max for trousers, etc.). The full size table is in HMRC Notice 714. Teen sizes up to UK 14-year-old measurements remain zero-rated even if marketed to adults; clothes above these measurements are 20% standard rate. The retailer is responsible for getting the classification right.
Do I charge VAT on services to EU customers post-Brexit?
For B2B services to EU-VAT-registered customers, the general rule (article 44 of the EU VAT Directive equivalent in UK law) is that the place of supply is the customer's country — so you invoice without VAT, the EU customer self-accounts under reverse charge. Show their VAT number on the invoice. For B2C services to EU consumers, the place of supply depends on the service type and may require EU OSS registration in one EU member state.
How are digital books treated?
Zero-rated since May 2020 — the Finance Act 2020 extended the zero rate to e-books, audiobooks, e-newspapers and academic journals to harmonise digital with physical print. Before May 2020 they were 20% standard rate. Streaming services (Netflix, Spotify, Disney+) remain 20% standard rate — only books, newspapers and journals in digital form qualify for zero rating.
Are sanitary products still 5% or now 0%?
Zero-rated since 1 January 2021. The reduced rate of 5% (set at the EU minimum allowed for sanitary products) was politically controversial — a long-running 'tampon tax' campaign — and was reduced to 0% as one of the first uses of post-Brexit VAT autonomy. This is one specific case where leaving the EU enabled the UK to abolish a tax that EU rules wouldn't permit.
Does 4invoices apply the right UK VAT rate automatically?
No. You choose the VAT rate on each invoice line. 4invoices supports a VAT rate per line, any currency with an exchange rate, and PDF download, with a 6-month free trial and no card needed. Confirm the correct rate with GOV.UK or your accountant.