VAT rates

Summary

Understand VAT rates for the UK in Sage Accounting.

Description

Learn more about the VAT rates used in Accounting and how to set up defaults to reduce errors. 

There are five pre-set VAT rates to choose from. Simply choose the appropriate VAT rate for your transaction. 

Available VAT rates and when they're used

Depending on what you buy or sell, there are several different VAT rates that apply.

To keep things simple, we set up and update the VAT rates for you. Simply choose the appropriate VAT rate for your transaction.

We list the VAT rates below with brief examples of what they apply to. This isn’t a complete list. Check the HMRC website for full details.

  • Standard- Used for most transactions. Currently 20%

  • Lower rate- This is also called Reduced rate. Currently 5%. Used for some goods and services, such as children’s car seats and home energy

  • Zero Rated- Currently 0%. Used for certain goods and services such as most food and children’s clothes

  • Exempt- For transactions exempt from VAT, such as postage stamps, financial and property transactions. The net amount still appears on your VAT Return

  • No VAT- For transactions exclusive of VAT. These don’t appear on your VAT Return

Difference between zero rate and exempt

Zero-rated items have a VAT rate of zero percent set by the government. These include children’s clothes and footwear, water, basic foods, books and newspapers.

Exempt items don't include VAT. You don't charge or pay VAT on them. You still record them on the VAT Return. This includes items such as land, postal services, health services, betting and gaming.

Custom VAT rates

You can’t create your own custom VAT rates in Sage Accounting. However, you can overwrite the VAT* value when raising transactions.

NOTE:

Custom VAT Rate functionality is available in Sage 50 Accounts. If you need this, request a call-back for more information.

How VAT rates appear on the VAT return

This table shows how these rates affect each box on the VAT Return:

VAT rate Sale or purchase Net or VAT Box
Standard Sale Net Box 6
VAT Box 1
Purchase Net Box 7
VAT Box 4
Lower Rate Sale Net Box 6
VAT Box 1
Purchase Net Box 7
VAT Box 4
Zero Rated Sale Net Box 6
VAT N/A
Purchase Net Box 7
VAT N/A
Exempt Sale Net Box 6
VAT N/A
Purchase Net Box 7
VAT N/A
No VAT Non-vatable rate. The transaction doesn’t appear on the VAT Return.

If you purchase goods or services from VAT-registered suppliers in the EU, the following also applies:

  • Reverse charge VAT - VAT on purchases appears in Boxes one and four with the net amounts in Boxes six and seven
  • Notional VAT - VAT on purchases appears in Boxes two and four with the net amounts in Boxes seven and nine

Change the VAT rate on a ledger account

Each ledger account holds a default VAT rate to save you from having to select the correct rate each time you use it. It's simple to change the default.

NOTE:

Changing the default rate won't change existing transactions. They'll remain with the rates set at the time of their creation.

To change the default VAT rate on a ledger account, follow the steps on our edit a ledger account guide. Change the VAT Rate dropdown.

Solution Properties

Solution ID
222001000101370
Last Modified Date
Fri Jun 05 10:48:22 UTC 2026
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