VAT is short for Value Added Tax. Introduced to the UK in 1973, it's a type of tax that’s charged on most goods and services sold in the UK. It’s added at each stage of the supply chain – from production and wholesale right through to the final sale – but is ultimately paid by the end consumer.
For consumers, if applicable, VAT is added to the cost of the product (like when we go shopping, or make purchases online).
In business, if your taxable turnover goes over a certain threshold - £90,000 as of April 2025 - you’ll usually need to register for VAT with HMRC (unless you're a VAT-exempt business, like some education facilities or charities). That means charging VAT on your services or products, and submitting regular returns to show how much VAT you’ve collected and paid.
There are different VAT rates depending on what’s being sold – the standard rate is 20%, but reduced (5%) or zero rates also apply in certain situations. Some items, like stamps, books, insurance and children's clothes, are exempt altogether.