How VAT is calculated
- Adding VAT: VAT = net price × rate ÷ 100. A £100 net sale at 20% carries £20 VAT, invoiced as £120 gross.
- Removing VAT: net = gross ÷ (1 + rate ÷ 100). From a £120 gross receipt, £100 is yours and £20 is owed to HMRC.
- Rates: most goods and services are charged at the 20% standard rate. The 5% reduced rate covers domestic energy and some renovation work; children's clothes, books and most food are zero-rated — still reported, but no VAT charged.
Quoting prices to business clients and need the dates on your paperwork right too? Set the deadline with the invoice due date calculator, or produce a itemised bill in seconds with the invoice generator.
Three worked examples
Example 1 — adding VAT to a net quote
You quote a client £850 net for a website build. VAT at 20% is £170, so the invoice total is £1,020. The £170 is never yours — it sits in the business until the return is filed. Set the payment deadline for that invoice with the due date calculator.
Example 2 — removing VAT from a gross receipt
A customer pays you £2,400 gross. Net: £2,400 ÷ 1.20 = £2,000. VAT owed to HMRC: £400. A common shortcut is to "take off a sixth" of the gross — which works only at the 20% rate: 2,400 ÷ 6 = £400. At the 5% reduced rate the fraction is one twenty-first instead. When in doubt, divide by (1 + rate) — it is always correct.
Example 3 — mixed-rate basket
An invoice contains £600 of standard-rate work, £300 of 5%-rate renovation labour and £100 of zero-rated children's clothing. VAT: £120 + £15 + £0 = £135 on a £1,000 net invoice. This is why a single rate field breaks down on mixed invoices — apply each rate to its own line before totalling.
VAT schemes that change the arithmetic
Standard VAT accounting is not the only option. The scheme you are on changes what the calculator's output means for your cash.
- Standard accounting — you charge output VAT on invoices and reclaim input VAT on purchases; the difference is paid or reclaimed each quarter. This calculator models this directly.
- Cash accounting — VAT is only owed when the customer actually pays. Your output VAT follows the payment date, not the invoice date, which matters enormously on 60-day terms.
- Flat Rate Scheme — you pay HMRC a fixed percentage of turnover (varies by trade, commonly 9–14%) and do not reclaim input VAT on most purchases. You still charge customers 20% on invoices, so what you keep differs from what you charge — the scheme's own calculator on GOV.UK handles the specifics.
- Annual Accounting — one return a year with monthly payments on account. The arithmetic is unchanged; only the filing rhythm moves.
Whichever scheme applies, the dates that keep you compliant are the invoice date and the payment date — track both with the invoice due date calculator and the business days calculator.
FAQ
What is the current VAT rate in the UK?
The standard rate is 20%. A reduced 5% rate applies to domestic energy and certain energy-saving materials, and categories such as children's clothing, books and most food are zero-rated.
How do I remove VAT from a gross price?
Divide the gross by 1.20 at the standard rate. For £120 gross: £120 ÷ 1.20 = £100 net, so the VAT element is £20. Choose Remove VAT above and the calculator shows both figures.
What is the VAT registration threshold?
£90,000 of taxable turnover in any rolling 12-month period obliges you to register. Voluntary registration below the threshold lets you reclaim input VAT — often worthwhile before a large purchase.
Do I charge VAT to EU customers?
Business-to-business supplies of services to EU companies are generally outside the scope of UK VAT under the reverse charge — invoice with a note that the customer accounts for VAT. Sales of goods to EU consumers may require EU VAT registration via the OSS scheme once you exceed the EU-wide €10,000 micro-threshold.
What must a VAT invoice show?
A full VAT invoice must show a unique sequential invoice number, your VAT registration number, the issue date and tax point, the customer's details, a description of each line, the VAT rate per line and the amount of VAT charged in sterling.
Why does the VAT on my receipt not divide evenly?
Retailers calculate VAT per line item and round each line to the nearest penny, so summing a single "VAT included" line can differ by a penny from a back-of-envelope division. Accountants reconcile this with rounding tolerances.
Is VAT charged on postage?
Standard-rated postage carries VAT; zero-rated items in the parcel do not change the postal charge. Royal Mail signed-for extras are standard-rated, while international postage is zero-rated.
Can I reclaim VAT on everything I buy?
Only on purchases wholly for the business and supported by a valid VAT invoice. Entertainment for clients is blocked, and mixed business-private use (cars, phones) is apportioned.
What is the difference between the invoice date and the tax point?
The tax point (time of supply) is when the VAT legally becomes owed — usually the invoice date, or the date goods were delivered if that came first. Issue an invoice more than 14 days after the tax point and HMRC can treat the tax point as the delivery date instead. Deadlines follow the tax point, so set reminders with the add days calculator.
How does VAT work on discounts?
VAT is charged on the price the customer actually pays. A £120 gross price discounted to £99 carries VAT of £16.50, not £20 — calculate the net, apply the discount, then reapply the rate. Running discounts backwards from a target price is what the discount calculator does.
Sources and standards
- GOV.UK — VAT section: rates, registration thresholds, schemes and invoicing rules. Last checked: 2026-09-19.
- HMRC Notice 700 — The VAT Guide: the authoritative statement of tax point, invoice content and record-keeping rules. Last checked: 2026-09-19.
- GOV.UK — VAT rates: current standard (20%), reduced (5%) and zero-rated categories. Last checked: 2026-09-19.
Rates and threshold figures on this page were last verified on September 19, 2026. VAT rates change by Act of Parliament — always confirm the current rate on GOV.UK before filing.