Reduced Rate VAT
A 5% VAT rate applied to certain goods and services deemed essential or beneficial, including domestic fuel and power, children's car seats, and some energy-saving materials. The reduced rate is significantly lower than the standard 20% rate to ease the cost burden on consumers in these categories. Businesses must correctly classify their supplies to charge and reclaim VAT at the appropriate rate.
Related Terms
Value Added Tax
A consumption tax charged at each stage of production and distribution on goods and services, with the final burden falling on the end consumer.
Standard Rate VAT
The main VAT rate of 20% applied to most goods and services sold in the UK by VAT-registered businesses.
Zero Rate VAT
A 0% VAT rate applied to certain essential goods and services, including most food, children's clothing, books, and prescribed medicines.
VAT Registration Threshold
The level of taxable turnover above which businesses must register for VAT, currently £90,000 per rolling 12-month period.
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