UK VAT Rates Explained
The UK has three VAT rates, each applying to different categories of goods and services. Choosing the right rate is essential because applying the wrong one is one of the most common HMRC compliance failures for freelancers and small businesses.
| Rate | Type | Applies To |
|---|---|---|
| 20% | Standard | Most goods and services: consulting, software, design, restaurant meals, clothing for adults, electronics, alcohol |
| 5% | Reduced | Domestic fuel and power, children's car seats, mobility aids for elderly, smoking cessation products |
| 0% | Zero-rated | Most food, books and newspapers, children's clothes, prescription medicines, public transport, exports |
Some goods and services are VAT-exempt (different from zero-rated): financial services, insurance, education, healthcare. Exempt items don't appear on a VAT invoice at all.
Do You Need to Register for VAT?
VAT registration is mandatory when your taxable turnover exceeds GBP 90,000 in any rolling 12-month period (the 2025/26 threshold). Below this, you can register voluntarily, which lets you reclaim VAT on business expenses but means charging VAT to clients.
Most UK freelancers and sole traders earning under GBP 90,000 don't need to register. If you're VAT-registered, you must:
- Charge VAT on your invoices
- Include your VAT number on every invoice
- Submit VAT returns to HMRC (usually quarterly via Making Tax Digital)
- Keep VAT records for at least 6 years
Step-by-Step: How to Create a UK VAT Invoice
Step 1 - Your business identification
At the top of the invoice, include:
- Your business name (or trading name)
- Full business address
- VAT registration number (mandatory for VAT-registered businesses, format: GB followed by 9 digits)
- Company registration number (for limited companies)
Step 2 - Customer details
- Customer name (or business name)
- Customer billing address
- For EU B2B sales: customer VAT number
Step 3 - Invoice metadata
- Unique sequential invoice number (required by HMRC)
- Invoice date (tax point date)
- Payment due date (Net 14 or Net 30 is standard)
Step 4 - Itemize and calculate VAT
List each service or product with quantity, unit price, and net amount. Then calculate VAT:
Example: GBP 1,000 x (20 / 100) = GBP 200 VAT
Show net, VAT, and gross totals separately. This three-line breakdown is legally required for VAT-registered businesses.
Real Examples
Example 1 - Standard 20% VAT on a Consulting Invoice
- Net amount: 10 hours x GBP 75 = GBP 750.00
- VAT 20% = GBP 750 x 0.20 = GBP 150.00
- Gross total = GBP 750 + GBP 150 = GBP 900.00
Example 2 - 5% Reduced VAT on Domestic Energy
- Net amount: GBP 500.00
- VAT 5% = GBP 500 x 0.05 = GBP 25.00
- Gross total = GBP 500 + GBP 25 = GBP 525.00
Example 3 - Zero-rated Book Export
- Net amount: GBP 2,000.00
- VAT 0% (zero-rated, books) = GBP 0.00
- Gross total = GBP 2,000.00
- Show on invoice: "Zero-rated supply"
UK VAT Invoice Compliance Checklist
Every UK VAT invoice MUST contain (HMRC rules):
- Unique sequential invoice number
- Invoice date (date of issue)
- Tax point date (if different from invoice date)
- Your name and address
- Your VAT registration number
- Customer name and address
- Description of goods or services
- Quantity and unit price
- Net amount per line
- VAT rate applied (20%, 5%, or 0%)
- Total VAT amount
- Gross total (including VAT)
- For zero-rated/exempt: a note explaining the rate
Reverse Charge VAT for International Clients
When selling B2B services to clients in the EU or rest of the world, you usually don't charge UK VAT. Instead, the customer accounts for VAT under the reverse charge mechanism. The invoice should include:
- 0% VAT
- The note "Reverse charge: customer to account for VAT"
- Both your and the customer's VAT numbers (for EU)
For B2C sales to consumers in other countries, different rules apply - typically you charge UK VAT unless you've registered for the One-Stop Shop scheme.
How to Calculate VAT in Reverse (Gross Total Given)
If a price already includes 20% VAT and you need the net amount:
VAT = Gross - Net
Example: GBP 1,200 / 1.20 = GBP 1,000 net, GBP 200 VAT
For 5% reduced rate, divide by 1.05.
Common Mistakes UK Freelancers Make
- Missing VAT number - HMRC penalties up to GBP 500 per invoice. Always include format GB followed by 9 digits.
- Wrong VAT rate - Charging 20% on zero-rated items (books, kids clothes) means refunds to clients.
- Non-sequential numbers - Skipping numbers (INV-001 then INV-005) triggers HMRC red flags.
- No tax point date - Required if the invoice date differs from when supply was made.
- Forgetting reverse charge note - For EU/international B2B, missing this means clients can't reclaim VAT.
Generate a UK VAT Invoice in 60 Seconds
Free, HMRC-compliant. GBP currency, automatic VAT calculation, VAT number field. Download as PDF instantly.
Open the Invoice Generator →Sole Trader vs Limited Company Invoicing
Both must follow the same VAT invoice rules, but there are differences:
- Sole trader - Use your own name (or trading name) and home/business address. No company registration number needed.
- Limited company - Use registered company name, registered office address, and Companies House registration number. Director name on invoice is not legally required.
- Partnership - Use partnership name and address. List partner names if appropriate.
Frequently Asked Questions
What is the VAT rate in the UK? +
The standard UK VAT rate is 20%. The reduced rate is 5% for items like home energy and child car seats. Some goods like food, books, and children's clothes are zero-rated at 0%.
Do I need to register for VAT in the UK? +
VAT registration is mandatory if your taxable turnover exceeds GBP 90,000 in any 12-month period. Below that threshold, registration is voluntary.
How do I calculate VAT on a 1000 pound invoice? +
For 20% VAT: 1000 x 0.20 = 200 pounds VAT, total 1200. For 5% VAT: 1000 x 0.05 = 50 pounds VAT, total 1050.
What must a UK VAT invoice include? +
Your business name and address, VAT number, invoice number and date, customer name and address, description of goods or services, VAT rate, net amount, VAT amount, and gross total.
Can a sole trader issue a VAT invoice? +
Yes, but only if registered for VAT. Non-VAT-registered sole traders issue simple invoices without VAT lines.
How long must I keep VAT invoices? +
HMRC requires VAT records to be kept for at least 6 years.
What is reverse charge VAT? +
For B2B services to overseas VAT-registered businesses, the customer accounts for VAT in their country. The invoice shows 0% VAT with the note "Reverse charge: customer to account for VAT".
Do I charge VAT to US clients? +
Generally no. Services to US business clients are typically outside the scope of UK VAT (place of supply rules). Goods exported to the US are zero-rated.