What is reduced rate VAT and what does it apply to?
Answered 11 March 2026
Here is a comprehensive answer on reduced rate VAT:
What is Reduced Rate VAT?
What the law says
The legal basis for the reduced rate of VAT is found in section 29A of the Value Added Tax Act 1994 (VATA 1994). It provides that VAT charged on any supply of a description specified in Schedule 7A to VATA 1994, or any equivalent acquisition or importation, shall be charged at the rate of 5%.
The Treasury has the power to vary Schedule 7A by adding, deleting, or varying descriptions of supply by statutory order. This power can be exercised to describe a supply by reference to matters unrelated to the characteristics of the goods or services themselves — including, in the case of goods, the use to which they have been put.
References elsewhere in VATA 1994 to a supply being a "reduced-rate supply" are references to a supply on which VAT is charged at the rate in force under section 29A.
Schedule 7A contains the specific groups of reduced-rated supplies. These include, among others:
- Group 1 – Supplies of domestic fuel or power
- Group 2 – Installation of energy-saving materials in residential accommodation
- Group 5 – Children's car seats
- Group 8 – Contraceptive products
- Group 9 – Welfare advice or information
- Group 10 – Installation of mobility aids for the elderly
- Group 11 – Smoking cessation products
The Finance Act 2015 introduced a "VAT lock" providing that the reduced rate under section 29A shall not exceed 5% during the VAT lock period, and that no supply specified in Schedule 7A at the start of that period may be removed from it.
Note on temporary rates: During the COVID-19 pandemic, a temporary 5% reduced rate was applied to hospitality, hotel and holiday accommodation, and admission to certain attractions (Groups 14–16 of Schedule 7A). This was subsequently replaced by a temporary 12.5% rate from 1 October 2021 to 31 March 2022.
HMRC guidance / practice
HMRC describes the reduced rate as "the rate of VAT liable on supplies of certain goods and services", giving the following examples: domestic fuel and power, children's car seats, residential renovations and conversions. HMRC directs businesses to VAT Notice 700 (the VAT Guide) for a full list of reduced-rated goods and services.
HMRC also confirms that the reduced rate for energy-saving materials applies at 5%, and that from 1 May 2023 to 31 March 2027 installations of energy-saving materials are zero-rated, reverting to the 5% reduced rate from 1 April 2027.
HMRC notes that the reduced value rule (e.g. for long-stay hotel guests) is distinct from the reduced rate: the reduced value rule relieves part of the charge from VAT, whereas the reduced rate reduces the rate of VAT charged on the supply.
Citation sources
Citation, commencement and application 1 1 This Order may be cited as the Value Added Tax (Reduced Rate) (Children’s Car Seats) Order 2009 and comes into force on 1st July 2009. 2 The amendments made by this Order have effect in relation to supplies made, and acquisitions and importations taking place, on or after 1st July 2009. Amendment of Schedule 7A to the Value Added Tax Act 1994 2 Group 5 of Part 2 of Schedule 7A to the Value Added Tax Act 1994 (children’s car seats) is amended as follows.
PART 1 Principal rates etc Tax lock VAT lock 2 1 The rate of value added tax for the time being in force under section 2 of VATA 1994 (standard rate) shall not exceed 20% during the VAT lock period. 2 The rate of value added tax for the time being in force under section 29A of VATA 1994 (reduced rate) shall not exceed 5% during the VAT lock period. 3 No supply specified in Schedule 7A to VATA 1994 (charge at reduced rate) at the beginning of the VAT lock period may be removed from it under secti
Citation and Commencement 1 This Order may be cited as the Value Added Tax (Reduced Rate) (Supplies of Domestic Fuel or Power) Order 2008 and comes into force on 1st November 2008. Amendment of Group 1 of Schedule 7A to the Value Added Tax Act 1994 2 In Schedule 7A to the Value Added Tax Act 1994 (reduced rate: supplies of domestic fuel or power) , in paragraph 1(3) of the Notes to Group 1, insert at the end— , unless the oil is— a kerosene in respect of which a relevant declaration has been mad
This notice explains when the installation of energy-saving materials and heating equipment is zero-rated or reduced-rated. Where reference to the term ‘relief’ is made that will relate to supplies made at the zero rate of VAT in Section 2 and at the reduced rate of VAT (5%) in section 3. Following various legislative changes from 1 October 2019, this notice covers supplies of installations of energy-saving materials made between 1 May 2023 and 31 March 2027. From 1 April 2027 onwards, supplies
1 This Order may be cited as the Value Added Tax (Reduced Rate) Order 2006 and comes into force on 1st July 2006. 2 Schedule 7A to the Value Added Tax Act 1994 is amended as follows. 3 In Part 1— a after the entry for “Children’s car seats” insert— Contraceptive products Group 8 ; and b after the entry for “Residential conversions” insert— Welfare advice or information Group 9 . 4 In Part 2, after Group 7 (residential renovations and alterations) insert the Groups 8 and 9 set out in the Schedule
Reduced rate is the rate of VAT liable on supplies of certain goods and services, for example, domestic fuel and power, children’s car seats, residential renovations and conversions. For more information about what goods or services are reduced-rated see VAT guide (VAT Notice 700).
Part VI Supplementary provisions Change in rate of VAT etc. and disclosure of information Supplies spanning change of rate etc. 88 1 This section applies where there is a change in the rate of VAT in force under section 2 or 29A or in the descriptions of exempt , zero-rated or reduced-rate supplies .... 2 Where— a a supply affected by the change would, apart from section 6(4), (5), (6) or (10), be treated under section 6(2) or (3) as made wholly or partly at a time when it would not have been af
This rule allows the charge for the actual sleeping accommodation element of the supply to be relieved from VAT when a guest stays for over 28 consecutive days. But the supply of accommodation does not become exempt from VAT, it is still taxable and the normal input tax rules apply. As such, the reduced value rule operates differently from the temporary reduced rate for VAT as it operates to relieve part of the charge for the supply from VAT as opposed to reducing the rate of VAT charged.
Part II Reliefs, exemptions and repayments Reliefs etc. generally available Reduced rate 29A 1 VAT charged on— a any supply that is of a description for the time being specified in Schedule 7A, or b any equivalent ... importation, shall be charged at the rate of 5 per cent. 2 The reference in subsection (1) to an equivalent importation, in relation to any supply that is of a description for the time being specified in Schedule 7A, is a reference to any importation of any goods the supply of whic
1 1 This Order may be cited as the Value Added Tax (Reduced Rate) Order 2007 and comes into force on 1st July 2007. 2 Articles 3(a) and 4 have effect in relation to supplies made on or after 1st July 2007. 3 Articles 3(b) and 5 have effect in relation to supplies made on or after 1st July 2007 but before 1st July 2008. 2 Schedule 7A to the Value Added Tax Act 1994 (charge at reduced rate) is amended as follows. 3 In Part 1— a after the entry for “Heating equipment, security goods and gas supplie