UK Reduced VAT Rates: 5%, 0%, and Exempt Categories

UK reduced VAT rates come in two forms: a 5% rate that applies to a short list of goods and services including domestic fuel and power, children’s car seats, nicotine replacement products, mobility aids installed for people aged 60 or over, and qualifying residential renovations; and a 0% rate that covers essentials such as most food and drink, children’s clothing and footwear, books and newspapers (including digital editions), prescription medicines, equipment for disabled people, and sanitary products.¹ Each category carries its own conditions, and a product that qualifies for a lower rate in one situation can shift back to the 20% standard rate in another.

How the 5%, 0%, and Exempt Categories Differ

Both the 5% and 0% rates are taxable supplies. That matters because a business making zero-rated or reduced-rate sales can still reclaim the VAT it pays on its own costs. Exempt supplies sit outside the VAT system entirely: no VAT is charged on the sale, but the business also cannot recover VAT on related expenses, so that cost gets built into the price the customer eventually pays. A business selling only zero-rated goods often ends up in a refund position with HMRC, because it charges 0% but reclaims input tax on stock, equipment, and overheads.

What Qualifies for the 5% Rate

The 5% reduced rate is a narrow list, and each item comes with conditions attached.

Domestic Fuel and Power

Electricity, gas, heating oil, and solid fuel supplied for residential use are taxed at 5% instead of 20%.² The same 5% rate covers fuel and power for charities carrying out non-business activities, and small-quantity supplies up to 1,000 kilowatt hours of electricity per month or a delivery of 2,300 litres of gas oil.³ Commercial and industrial use is standard-rated. Mixed-use premises require a customer certificate declaring the qualifying percentage.

Children’s Car Seats

Car seats, booster seats, and booster cushions designed for children carry the 5% rate.¹ Other children’s items — clothing and footwear — are zero-rated instead.

Smoking Cessation Products

Nicotine patches and gum sold as aids for quitting smoking are taxed at 5%.¹ The reduced rate is specific to nicotine replacement products; it does not extend to vaping products or e-cigarettes.

Mobility Aids for People Aged 60 or Over

Grab rails, ramps, stair lifts, bath lifts, built-in shower seats, and walk-in baths with sealable doors qualify for 5% VAT when they are supplied and installed in the home of someone aged 60 or over.⁴ Both the supply and the installation must happen together. Selling the item without fitting it does not qualify. Equipment for disabled people follows different, more generous rules and is zero-rated: the same stair lift installed for a disabled person carries 0% VAT rather than 5%.

Residential Renovations and Conversions

Labour and materials for renovating a dwelling that has been empty for at least two years qualify for 5% VAT, as does work that increases the number of dwellings inside an existing building.¹ Converting a commercial building into flats is a common example. The rate applies to construction services and building materials used on-site, not to any later sale or rental of the finished property.

Energy-Saving Materials: Currently Zero-Rated

Energy-saving materials installed in residential properties, including insulation, solar panels, and heat pumps, normally sit in the 5% band. From 1 May 2023 through 31 March 2027 they carry a temporary zero rate instead, reverting to 5% after March 2027.⁵ During this window, qualifying materials and their installation attract no VAT at all. The zero rate depends on permanent installation; buying insulation rolls on their own is standard-rated.

What Qualifies for the 0% Rate

Zero-rating is the most favourable treatment in the system. The customer pays no VAT, and the seller can still reclaim VAT on inputs. The categories cover essentials.

Food and Drink

Most food and drink for human consumption is zero-rated.¹ The exclusions are extensive: confectionery, crisps and savoury snacks, ice cream, soft drinks, mineral water, sports drinks, alcoholic beverages, hot takeaway food, and anything sold as catering all attract 20% VAT. The line between the two can be very fine. A plain biscuit is zero-rated. A chocolate-covered biscuit is standard-rated. If you sell food, product-level classification is one of the more common places errors occur.

Children’s Clothing and Footwear

Clothing and shoes designed for children are zero-rated.¹ The items must be in children’s sizes; adult-sized products are standard-rated even if a child wears them.

Books, Newspapers, and Digital Publications

Printed books, newspapers, journals, magazines, and pamphlets are zero-rated. Since 1 May 2020, so are their electronic equivalents, including e-books, digital newspapers, and online periodicals.⁶ Before that date, digital publications carried the 20% standard rate.

Prescription Medicines and Equipment for Disabled People

Dispensed prescription medications are zero-rated. So is a wide range of equipment and aids designed for disabled people, including adapted motor vehicles, mobility scooters, medical and surgical appliances, specialist adjustable beds, chair lifts, hoists, alarm systems, and specialist computer devices.⁴ The 0% rate applies when the goods are for the personal or domestic use of a disabled person, or when supplied to a charity that provides them to disabled people.

Sanitary Products

Sanitary protection products and maternity pads are zero-rated.¹ They previously carried the 5% reduced rate before being moved to 0%.

Conditions That Change the Rate

The applicable rate depends on more than the product itself. Who is buying, how the item will be used, and the physical characteristics of the property all feed into the answer.

Charities show this clearly. A charity pays 5% VAT on fuel and power used for residential accommodation such as a care home, for charitable non-business activities, or in small quantities. Charities importing goods from outside the UK for the benefit of people in need pay no VAT on those imports.³ The same charity buying office furniture for its trading arm pays the standard rate, because that is a business activity.

Building work follows a similar logic. The 5% rate for residential renovations depends on the property having been genuinely empty for at least two years, not simply unoccupied by the current owner. Conversions must result in an increased number of dwellings or a change in the type of residential use. The seller or contractor is responsible for confirming that the buyer’s circumstances and the property meet the qualifying conditions before applying the lower rate. If the conditions are not met and the reduced rate is used anyway, the business is liable for the shortfall and any penalties.

Documentation You Need to Hold

Applying a reduced or zero rate is not just an accounting-software choice. HMRC expects specific paperwork to be in place at the time of the transaction.

For supplies of domestic fuel and power to mixed-use premises, the supplier must hold a certificate from the customer stating the percentage of supply going to qualifying use, with a separate certificate for each premises.² For zero-rated supplies to disabled people, the business should hold a declaration confirming that the customer is a disabled person and that the goods are for personal or domestic use.⁴

Invoices must show each VAT rate applied, with a clear breakdown of the net price and the VAT amount. Where one invoice covers work at more than one rate — a builder mixing standard-rated and reduced-rated services, for instance — each rate needs its own line. VAT-registered businesses must keep these records digitally and file returns through compatible software under Making Tax Digital.⁷

Reporting Reduced and Zero-Rated Sales

Reduced-rate and zero-rated sales are reported on your VAT return alongside standard-rated output. The online filing and payment deadline for a quarterly return is one calendar month and seven days after the end of the accounting period.⁸

Registration matters even if everything you sell is zero-rated. The VAT registration threshold is £90,000 of taxable turnover, and zero-rated sales count toward that figure.⁹ A business selling only zero-rated goods that crosses the threshold must still register, and once registered it typically receives refunds because it charges 0% but can reclaim VAT on its costs. Some businesses register voluntarily below the threshold specifically to unlock that input tax recovery.

Getting the Rate Wrong

Charging 5% when the correct rate was 20%, or zero-rating something that does not qualify, creates an inaccuracy on your VAT return. HMRC treats this as an understatement of the tax due, and the penalty depends on why the error happened:¹⁰

Lack of reasonable care: 0% to 30% of the extra tax owed
Deliberate error: 20% to 70% of the extra tax owed
Deliberate and concealed error: 30% to 100% of the extra tax owed

HMRC can reduce the penalty if you disclose the mistake voluntarily and cooperate in correcting it. Late payment interest also runs from the first day the tax was overdue until it is paid, calculated at the Bank of England base rate plus 4%, and it applies to unpaid penalties as well.¹¹

The most common errors involve food classification, building work where the property does not meet the two-year vacancy rule, and missing customer declarations for fuel, power, or disability-related supplies. If you find an error on a previous return, a voluntary disclosure almost always produces a better outcome than waiting for HMRC to identify it during a compliance check.

1
GOV.UK. VAT Rates on Different Goods and Services
2
GOV.UK. Fuel and Power (VAT Notice 701/19)
3
GOV.UK. VAT for Charities: What Qualifies for VAT Relief
4
GOV.UK. Reliefs From VAT for Disabled and Older People (VAT Notice 701/7)
5
GOV.UK. Energy-Saving Materials and Heating Equipment (VAT Notice 708/6)
6
GOV.UK. Zero Rate of VAT for Electronic Publications
7
GOV.UK. VAT Notice 700/22: Making Tax Digital for VAT
8
GOV.UK. Sending a VAT Return
9
GOV.UK. How VAT Works: VAT Thresholds
10
GOV.UK. Penalties: An Overview for Agents and Advisers
11
GOV.UK. Late Payment Interest if You Do Not Pay VAT or Penalties on Time