VAT Explained
The three rates, the genuinely odd exemptions, and what's changing on your energy bill
VAT (Value Added Tax) is charged on nearly everything you buy, but not at one flat rate, and not on everything. Unlike Income Tax or National Insurance, it isn't taken from your pay; it's built into the price you see on the shelf or the till receipt. This page focuses on the consumer side of VAT: what you actually pay and why, not the intricacies of running a VAT-registered business, which is not covered here. See Your Total Tax Burden for how VAT stacks on top of Income Tax and National Insurance to form the fuller picture of what you actually pay overall.
The three rates
There are three rates, and almost everything you buy falls into one of them.
| Rate | % | Examples |
|---|---|---|
| Standard | 20% | Most goods and services: electronics, alcohol, restaurant meals, hot takeaway food |
| Reduced | 5% | Domestic gas and electricity, children's car seats, mobility aids for older people |
| Zero | 0% | Most food, children's clothes and shoes, books and newspapers, public transport |
There's a fourth category too, even though it looks identical at the till. Some things are exempt rather than zero-rated: insurance, most health and education services, and postal services, for example. Both mean you pay no VAT, so as a shopper the distinction doesn't really matter to you. It only matters to the business selling it: a zero-rated business can still reclaim the VAT it paid on its own costs, an exempt one can't.
The odd exemptions and inclusions
Some of VAT's classifications are genuinely counterintuitive, and a few have ended up in tribunal case law because of it.
Jaffa Cakes are legally a cake, not a biscuit and it matters. Most biscuits are standard-rated once they're covered in chocolate; most cakes are zero-rated regardless. In 1991, HMRC argued Jaffa Cakes were really chocolate biscuits, and tried to tax them at the standard rate. McVitie's won the case (United Biscuits (UK) Ltd, VAT Tribunal LON/91/0160): the tribunal found Jaffa Cakes go hard like a cake when they go stale, rather than soft like a biscuit, and have enough of a genuine sponge-cake character — texture, ingredients, and how they're eaten — to count as a cake despite the chocolate coating. HMRC's own internal guidance still cites the case today as the leading authority on the cake/biscuit borderline.
Hot takeaway food and eating in a restaurant are taxed exactly the same at 20%. Whether food is standard-rated or zero-rated as takeaway comes down to two questions: is it served hot, and is it eaten on the premises or taken away. Try it below.
Is it served hot?
The "always standard-rated regardless of temperature or location" list catches a few everyday items too. Crisps and other savoury snacks, confectionery, ice cream, and soft drinks are taxed at 20% even bought cold, from a supermarket shelf, to take away.
Children's clothes and shoes are zero-rated, but the rule that decides "children's" isn't a simple age cut-off. HMRC uses body-measurement tables (height and chest/waist size, not age printed on the label), so it's possible for a small size aimed at an older child to still qualify, or a large size aimed at a younger one not to.
Period products are zero-rated. This wasn't always the case as a 5% reduced rate applied until 1 January 2021, when the UK was no longer bound by an EU minimum, and the rate was cut to zero (widely reported at the time as the end of the "tampon tax"). Reusable period underwear was added to the zero rate from 1 January 2024.
Energy-saving home improvements are zero-rated too. Insulation, solar panels, heat pumps, battery storage, and a handful of related installations are all at 0% until 31 March 2027, after which they're due to revert to the reduced rate. This is a separate relief from the domestic energy rate below, a discount on installing the equipment, not on the gas or electricity itself.
VAT on your energy bills
Domestic gas, electricity, heating oil, and solid fuel are normally charged at the reduced 5% rate, not the standard rate. That's been the baseline for years and isn't changing.
What is changing: from 1 October 2026, VAT on domestic electricity is being cut further, to 0%. Three things worth being precise about, since it's easy to overstate this:
- It's electricity only. Gas stays at 5%. If your home is heated by gas, this change doesn't touch that part of your bill.
- It's temporary. The cut is funded for the 2026/27 financial year, running to 31 March 2027. Whether it continues beyond that is a decision for a future Budget, not something already confirmed.
- It doesn't apply in Northern Ireland. Under post-Brexit rules, the UK can't unilaterally cut VAT on goods in Northern Ireland without EU agreement. Northern Ireland's electricity VAT stays at 5%, with separate funding provided to the Northern Ireland Executive instead to deliver equivalent support.
Worked example: a mixed shopping trip
A typical shop mixes items from more than one rate without you necessarily noticing: here's one basket, broken down.
| Item | Rate | Net price | VAT |
|---|---|---|---|
| Weekly groceries (bread, milk, vegetables) | Zero (0%) | £32 | £0 |
| Hot rotisserie chicken from the deli counter | Standard (20%) | £6 | £1.20 |
| A bottle of wine | Standard (20%) | £9 | £1.80 |
| Children's shoes | Zero (0%) | £14 | £0 |
| A bag of crisps | Standard (20%) | £1.20 | £0.24 |
| Total | £62.20 | £3.24 |
£62.20 of goods, £3.24 of VAT = £65.44 actually paid at the till, despite 2 of the 5 items being completely VAT-free.
See also Other Taxes for Fuel Duty, car tax, Insurance Premium Tax, Council Tax, and Stamp Duty Land Tax.
This page explains general VAT rules for consumers and is not personalised advice; see the disclaimer. It does not cover VAT registration, filing, or reclaiming input VAT as a business, which is out of scope for this site.