What is VAT?
Value Added Tax (VAT) is a tax on most goods and services sold by VAT-registered businesses in the UK. Businesses charge it to their customers, reclaim the VAT they pay on their own business purchases, and pass the difference to HMRC. For consumers, VAT is simply part of the shelf price. For businesses, freelancers and anyone checking an invoice, it is often necessary to work out the VAT element precisely – which is what this calculator does. Rates are taken from GOV.UK VAT rates.
UK VAT rates
| Rate | % of VAT | Typical examples |
|---|---|---|
| Standard | 20% | Most goods and services |
| Reduced | 5% | Some goods and services, e.g. domestic energy, children's car seats |
| Zero | 0% | Most food, children's clothes, books and newspapers |
Some supplies are exempt from VAT altogether (for example many financial and insurance services), which is different from zero-rated: exempt supplies do not count towards the VAT registration threshold in the same way and affect how much input VAT a business can reclaim. HMRC publishes detailed guidance on which rate applies to which goods.
How to add VAT
To add VAT to a net (VAT-exclusive) price, multiply by one plus the rate. At 20%:
Gross = Net × 1.20. For example, £250 + VAT = £250 × 1.2 = £300, of which £50 is VAT.
At the reduced rate of 5%, multiply by 1.05 instead.
How to remove VAT
A very common mistake is to take 20% off a VAT-inclusive price. That gives the wrong answer, because the VAT was calculated on the smaller net figure, not the gross. The correct method is to divide:
Net = Gross ÷ 1.20. For £300 including VAT, the net price is £300 ÷ 1.2 = £250, and the VAT is £50. Equivalently, the VAT inside a 20% VAT-inclusive price is always one sixth of the gross figure. Taking 20% off £300 would give £240 – £10 too low.
For 5% VAT, divide by 1.05; the VAT element is 1/21 of the gross.
Using the calculator
- Enter an amount.
- Choose whether the amount excludes VAT (you want to add it) or includes VAT (you want to remove it).
- Pick 20%, 5% or enter a custom rate – handy for checking foreign invoices or historic rates.
- Read off the net amount, the VAT and the gross amount.
VAT registration in brief
A business must register for VAT if its VAT-taxable turnover goes over the registration threshold in any rolling 12-month period, or is expected to in the next 30 days. The threshold has been £90,000 since 1 April 2024; check GOV.UK for the current figure before relying on it. Businesses below the threshold can register voluntarily, which can make sense if most customers are themselves VAT-registered and the business has significant VAT on its costs.
Once registered, a business must charge VAT on taxable sales, keep digital records and file VAT returns using Making Tax Digital-compatible software. There are simplified schemes – such as the Flat Rate Scheme and Cash Accounting – that can reduce paperwork for smaller businesses.
Common VAT pitfalls
- Quoting prices without saying whether VAT is included. Prices shown to consumers must generally include VAT. For business customers, state clearly whether a quote is “+ VAT”.
- Rounding. HMRC allows rounding VAT to the nearest penny per line or per invoice, but you should be consistent. This calculator rounds to the nearest penny.
- Reclaiming VAT without a valid VAT invoice. Generally you need a proper VAT invoice to reclaim input VAT.
- Mixing up zero-rated and exempt. They sound similar but have different consequences for a business's VAT recovery.
This calculator handles arithmetic only. It cannot tell you which VAT rate applies to a specific product – check HMRC guidance or an accountant if you are unsure.