VAT calculator
Add VAT to a price, or work backwards from a gross figure to find the VAT inside it.
Going backwards is where people slip
Adding VAT is easy: multiply by 1.2. Removing it is the one that catches people, because the instinct is to take 20% off the gross figure. That is always wrong, and always wrong in the same direction.
On a £120 gross bill, 20% would be £24, which would leave £96 net. Add 20% back to £96 and you get £115.20, not £120. The correct move is to divide by 1.2, which gives £100 net and £20 of VAT. The reason is that the VAT was charged on the net figure, not on the gross, so the percentage has a different base.
A shortcut worth remembering: at the standard rate the VAT is one sixth of the gross. £120 divided by 6 is £20.
The three rates
- Standard, 20%. Most goods and services.
- Reduced, 5%. Home energy, children's car seats.
- Zero, 0%. Most food, children's clothes, books.
There is a fourth category that is not a rate at all. Exempt supplies carry no VAT, like zero-rated ones, but the difference matters to a business: a zero-rated trader can reclaim the VAT on its own costs, an exempt one cannot. Insurance, postage and most property transactions are exempt.
What this does not cover
The flat rate scheme, where a small business pays a fixed percentage of gross turnover instead of accounting for VAT line by line. Partial exemption, margin schemes for second hand goods, reverse charge on construction services, and imports. It also does not tell you whether you should be registered. If your turnover is anywhere near the threshold, check GOV.UK rather than guessing, because registration is backdated and the penalties are not trivial.
Common questions
- How do I take VAT off a gross price?
- Divide by 1.2, do not take 20% off. On a £120 bill the VAT is £20, not £24. Taking the percentage off the gross is the single commonest VAT mistake and it is always wrong in the same direction.
- What is the difference between zero rated and exempt?
- Both mean no VAT on the sale, but a zero-rated business can still reclaim the VAT it pays on its own costs, and an exempt one cannot. Most food and children’s clothes are zero rated. Insurance, postage and most property transactions are exempt.
- When do I have to register for VAT?
- When your taxable turnover passes the registration threshold in any rolling twelve months, or when you expect to pass it within thirty days. Check the current threshold on GOV.UK before deciding, because it moves.
- Can I reclaim the VAT I pay?
- Only if you are VAT registered, and only on things bought for the business. You cannot reclaim on client entertaining, and cars are heavily restricted. Keep the VAT invoice: a receipt without a VAT number is not enough.