Whether you are pricing products, checking a supplier's invoice or reclaiming VAT on business expenses, you need to know how to calculate VAT correctly – and how to remove VAT from a price that already includes it. This UK-focused guide gives you the VAT formula for 20% and 5%, the VAT fraction shortcut, worked examples, the 2026 UK VAT rates and registration threshold, and the mistakes that cost small businesses money.
What Is VAT?
VAT (Value Added Tax) is a tax on most goods and services sold in the UK. VAT-registered businesses charge it on their sales (output VAT), reclaim the VAT they pay on business purchases (input VAT), and pay HMRC the difference. The final consumer, who cannot reclaim it, bears the tax. VAT is collected by HM Revenue & Customs (HMRC).
UK VAT Rates in 2026
| Rate | VAT | Examples |
|---|---|---|
| Standard rate | 20% | Most goods and services, restaurant meals, adult clothing, electronics, professional services |
| Reduced rate | 5% | Domestic gas and electricity, children's car seats, mobility aids for older people |
| Zero rate | 0% | Most food, books and newspapers, children's clothes and shoes, prescriptions, women's sanitary products |
Some supplies – such as insurance, most financial services and many education and health services – are exempt, which is different from zero-rated, as explained below.
How to Add VAT to a Price
Price including VAT = Net price × (1 + VAT rate ÷ 100)
- Add 20% VAT: multiply by 1.2. £250 × 1.2 = £300 (VAT £50).
- Add 5% VAT: multiply by 1.05. £80 × 1.05 = £84 (VAT £4).
To find just the VAT amount, multiply the net price by the rate: £250 × 0.20 = £50.
How to Remove VAT from a Price (Reverse VAT)
Net price = Gross price ÷ (1 + VAT rate ÷ 100)
- Remove 20% VAT: divide by 1.2. £300 ÷ 1.2 = £250, so the VAT was £50.
- Remove 5% VAT: divide by 1.05. £84 ÷ 1.05 = £80, so the VAT was £4.
This reverse VAT calculation is where most mistakes happen. Taking 20% off £300 gives £240 – £10 too low – because the 20% was added to the net price, not the total.
The VAT Fraction Shortcut
HMRC's VAT fraction gives the VAT inside a VAT-inclusive price directly:
- At 20%, the VAT fraction is 1/6: £300 ÷ 6 = £50 VAT.
- At 5%, the VAT fraction is 1/21: £84 ÷ 21 = £4 VAT.
The general formula is rate ÷ (100 + rate). Retailers using certain VAT schemes and anyone checking receipts use this shortcut every day.
Quick VAT Table at 20%
| Net price | VAT (20%) | Price inc. VAT |
|---|---|---|
| £10 | £2.00 | £12.00 |
| £50 | £10.00 | £60.00 |
| £100 | £20.00 | £120.00 |
| £250 | £50.00 | £300.00 |
| £1,000 | £200.00 | £1,200.00 |
| £5,000 | £1,000.00 | £6,000.00 |
Calculating VAT on an Invoice with Several Rates
When one invoice includes items at different rates, calculate VAT line by line and total the VAT for each rate. For example:
| Item | Net | Rate | VAT |
|---|---|---|---|
| 2 × office chairs at £50 | £100.00 | 20% | £20.00 |
| Children's car seat | £40.00 | 5% | £2.00 |
| Books | £12.50 | 0% | £0.00 |
| Total | £152.50 | £22.00 |
The invoice total is £174.50. The invoice mode in our VAT calculator produces this breakdown automatically.
Zero-Rated vs VAT-Exempt
Both mean no VAT is charged to the customer, but they work very differently for businesses:
- Zero-rated sales are taxable at 0%. They count towards your VAT turnover, and you can reclaim input VAT on related costs.
- Exempt sales are outside the VAT system. They do not count towards the registration threshold in the same way, and you generally cannot reclaim input VAT on costs related to them.
VAT Registration Threshold
A UK business must register for VAT when its VAT-taxable turnover goes over £90,000 in any rolling 12-month period, or if it expects to exceed £90,000 in the next 30 days alone. The deregistration threshold is £88,000. Registration below the threshold is voluntary and can make sense if your customers are VAT-registered businesses or you have large VAT-able costs. Once registered, you must keep digital records and file returns using Making Tax Digital compatible software.
VAT Schemes for Small Businesses
- Flat Rate Scheme: available if VAT-taxable turnover is up to £150,000 (excluding VAT). You pay a fixed percentage of your gross turnover, set for your sector; limited-cost traders pay 16.5%.
- Cash Accounting Scheme: pay VAT when customers pay you rather than when you invoice – useful for cash flow. Available up to £1.35 million turnover.
- Annual Accounting Scheme: make advance payments and file one return a year.
Reclaiming VAT on Business Expenses
A VAT-registered business can usually reclaim VAT on goods and services bought for business use, provided it holds a valid VAT invoice. There are exceptions: VAT on business entertainment of clients is generally blocked, and for cars there are special rules. If an expense is partly private, you can reclaim only the business share.
Common VAT Calculation Mistakes
- Removing VAT by taking 20% off instead of dividing by 1.2.
- Charging VAT before you are registered.
- Applying 20% to zero-rated or reduced-rate items.
- Rounding inconsistently across invoice lines.
- Reclaiming VAT without a proper VAT invoice.
More Worked VAT Examples
- A freelancer's invoice: fee £1,200 plus 20% VAT = £240 VAT, invoice total £1,440.
- A receipt for £57.60 including VAT: £57.60 ÷ 1.2 = £48.00 net; VAT £9.60 (or £57.60 ÷ 6).
- An energy bill of £126 including 5% VAT: £126 ÷ 1.05 = £120 net; VAT £6 (or £126 ÷ 21).
- Price to charge to keep £50 after VAT: £50 × 1.2 = £60 including VAT.
VAT Formulas in Excel
- VAT on a net price in A2:
=A2*20% - Price including VAT:
=A2*1.2 - Net price from a gross price:
=A2/1.2 - VAT inside a gross price:
=A2/6(20%) or=A2/21(5%) - Round to pence: wrap any formula in
=ROUND(…,2)
Rounding VAT on Invoices
HMRC allows you to round VAT to the nearest penny, either on each invoice line or on the invoice total, as long as you are consistent. Retailers who calculate VAT on many small sales may round down on each line. Small rounding differences are normal; large or systematic ones are not.
VAT for Online Sellers and Imports
For goods sent to UK customers from outside the UK in consignments worth up to £135, VAT is charged at the point of sale – by the overseas seller or, when sold through an online marketplace, by the marketplace itself – rather than collected at the border. Above £135, import VAT (and any customs duty) is collected when the goods enter the UK, and couriers usually add a handling fee. UK sellers on platforms such as eBay and Amazon who are VAT-registered must charge VAT on their sales as normal. Our eBay fee calculator includes UK VAT on fees when working out your profit.
Frequently Asked Questions
How do I calculate 20% VAT?
Multiply the net price by 0.2 to get the VAT, or by 1.2 to get the price including VAT. £80 plus 20% VAT is £96.
How do I remove 20% VAT from a price?
Divide the VAT-inclusive price by 1.2. £96 ÷ 1.2 = £80, so the VAT is £16. Or divide the gross price by 6 to get the VAT directly.
What is the VAT fraction for 20%?
1/6. The VAT in a VAT-inclusive price at 20% is one sixth of the total.
What is the UK VAT registration threshold in 2026?
£90,000 of VAT-taxable turnover in a rolling 12-month period. The deregistration threshold is £88,000.
What is the reduced rate of VAT in the UK?
5%, which applies to items such as domestic energy and children's car seats.
Is food VAT-free in the UK?
Most food is zero-rated, but restaurant meals, hot takeaway food, confectionery, crisps and soft drinks are standard-rated at 20%.
Can I calculate VAT for other countries?
Yes. The VAT calculator includes rates for Ireland, EU countries, the UAE, Saudi Arabia, South Africa and more. For Indian GST, see our guide on how to calculate GST.
How do I work out the VAT on a receipt?
Divide the total by 6 if the rate is 20%, or by 21 if it is 5%. A £57.60 receipt at 20% includes £9.60 of VAT.
Do I charge VAT if I am not registered?
No. Only VAT-registered businesses can charge VAT. Below the £90,000 threshold you can choose to register voluntarily.
Is VAT charged on imports under £135?
Yes, but it is charged at the point of sale by the seller or online marketplace rather than when the parcel arrives in the UK.
How often do I file a VAT return?
Most VAT-registered businesses file a return every three months using Making Tax Digital software. Businesses on the Annual Accounting Scheme file once a year.
Disclaimer: UK VAT rates, thresholds and schemes were checked in September 2026. This article is general information, not tax advice – check GOV.UK or speak to an accountant about your business.