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.
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.