VAT (Value Added Tax) is charged on most goods and services in the UK at a standard rate of 20%, with some things at 5% or 0%. If your business is VAT-registered, you add it to your prices, collect it from customers, and pay it over to HMRC — while reclaiming the VAT on what you buy.
Adding vs removing VAT
Adding VAT is straightforward: multiply the net (pre-VAT) amount by the rate and add it on. £100 plus 20% VAT is £120. Removing VAT trips people up, though. You can't just knock 20% off a gross price — because the VAT was calculated on the smaller net figure, not the larger gross one. To strip 20% VAT out of £120 you divide by 1.2, giving £100 net and £20 VAT. This calculator handles both directions for you.
Removing VAT is not the same as taking 20% off. £120 minus 20% is £96 — wrong. £120 divided by 1.2 is £100 — right. The gap is small on £120 and painful on £12,000.
The threshold every growing business must watch
You must register for VAT once your VAT-taxable turnover crosses the UK threshold — currently £90,000 — measured over any rolling 12-month period, not your tax year. That rolling bit catches people out: a strong few months can tip you over mid-year without you noticing. Miss the registration deadline and you can end up owing VAT on sales you never charged it on, straight out of your own pocket.
You can also register voluntarily before you hit the threshold, which is often smart if you sell mainly to other VAT-registered businesses (they reclaim it) and painful if you sell to the public (they can't).
Common questions
What is the current UK VAT rate?
The standard rate is 20%, which applies to most goods and services. A reduced rate of 5% applies to some things (like domestic energy), and some goods and services are zero-rated (0%) or exempt. This calculator lets you set any rate.
When do I have to register for VAT?
When your VAT-taxable turnover exceeds the registration threshold (currently £90,000) over any rolling 12-month period, or if you expect to cross it in the next 30 days. Check your rolling 12-month total monthly, because it's easy to cross without noticing.
Can I reclaim the VAT I pay on business purchases?
If you're VAT-registered, yes — you reclaim the VAT on eligible business purchases and offset it against the VAT you've collected, paying HMRC the difference. If you're not registered, you can't reclaim it, so it's simply a cost.