UK VAT Calculator
for 2026/27
Add or remove VAT at 20%, 5%, or zero rate. Instant reverse calculation with the rules that actually matter.
How UK VAT actually works
Value Added Tax is collected at every stage of production — but only the final consumer ultimately pays it. Every registered business in the chain is, in effect, an unpaid collection agent for HMRC.
The mechanism is more straightforward than it sounds. A manufacturer adds 20% VAT when selling to a wholesaler. The wholesaler pays that VAT, then reclaims it when filing their VAT return. They charge VAT on their own sale to the retailer. The retailer reclaims that too, charges VAT to the end customer — and the final consumer, not being VAT-registered, absorbs the cost with no way to recover it.
That chain of charge and reclaim is why VAT-registered businesses aren't really "paying" VAT at each stage. They're passing it through. The net amount owed to HMRC per quarter is simply: output VAT (charged on sales) minus input VAT (paid on purchases).
A business with £20,000 in output VAT and £7,000 in input VAT owes £13,000 on that quarter's return. If input exceeds output — common for exporters or businesses with large supply costs — HMRC owes the business a refund.
Input VAT vs output VAT
Output VAT is what you charge your customers on sales. Input VAT is what you pay to suppliers on purchases. Your VAT return is the quarterly reconciliation of output minus input — and when input exceeds output, HMRC owes you the difference.
Why this matters for your pricing
If your customers are mostly VAT-registered businesses, adding VAT doesn't actually cost them anything — they'll reclaim it on their next return. If you're selling to consumers or unregistered buyers, that 20% is a real, unrecoverable cost. Pricing strategy differs considerably depending on who's sitting across the invoice.
This is also why voluntary VAT registration can make financial sense even below the £90,000 threshold. A freelance designer paying 20% VAT on software, hardware, and office equipment recovers every penny of that input VAT once they're registered.
UK VAT rates — standard, reduced, zero and exempt
The UK operates four tiers of VAT treatment. The distinctions between zero-rated and exempt are particularly consequential — they behave completely differently within the VAT system.
| Rate | Category | Common examples | Can reclaim input VAT? |
|---|---|---|---|
| 20% | Standard | Electronics, clothing, restaurant meals, professional services, most B2B services | Yes |
| 5% | Reduced | Domestic energy (gas & electricity), children's car seats, nicotine patches, sanitary products, mobility aids for elderly | Yes |
| 0% | Zero-rated | Most food & drink, children's clothing, books & newspapers, prescription medicine, public transport, exports | Yes |
| — | Exempt | Insurance, financial services, education, postage stamps, residential property lettings, health services | No |
The VAT rules that catch people out
Food is mostly zero-rated — except when it's "hot food" or consumed on the premises of a catering establishment, where it becomes standard-rated at 20%. The identical sandwich is zero-rated in a supermarket and 20% in a café that serves it to eat in.
Construction is a minefield of rates. New residential builds are zero-rated. Renovations and repairs on existing homes are standard-rated at 20%. Converting a non-residential building to residential use can qualify for the 5% reduced rate.
Digital services sold to UK consumers always carry 20% VAT regardless of where the seller is based. An overseas software company with UK consumer revenue above £90,000 must register with HMRC.
The exact formulas — add, remove and reverse VAT
Three situations arise constantly. Each has a precise formula — and using the wrong one produces a material error on every transaction.
Adding VAT (net to gross)
You have a price before VAT and need the customer-facing total. Multiply the net amount by 1 plus the rate as a decimal.
Removing VAT (gross to net)
You have a VAT-inclusive price and need to extract the net. This is where most calculation errors occur — you cannot simply subtract 20% from the gross.
Finding the VAT amount from a gross price
At the standard 20% rate there is a useful shortcut: the VAT is always exactly one-sixth of the gross amount.
Quick reference — all formulas at a glance
| Calculation | Standard (20%) | Reduced (5%) | Zero (0%) |
|---|---|---|---|
| Add VAT to net | Net × 1.20 | Net × 1.05 | Net × 1.00 |
| Remove VAT from gross | Gross ÷ 1.20 | Gross ÷ 1.05 | Gross ÷ 1.00 |
| VAT amount from gross | Gross ÷ 6 | Gross ÷ 21 | £0.00 |
| Net from gross | Gross × 5/6 | Gross × 20/21 | = Gross |
The mistake happens because 20% of £120 is £24, giving £96. But only 20% of £100 (the actual net) was ever added to reach £120 in the first place. This error appears on handwritten invoices, in spreadsheets built with incorrect formulas, and occasionally on supplier invoices themselves. Over a full VAT period, it compounds into a material discrepancy on your return.
VAT registration — the £90,000 threshold
Current registration threshold
Confirmed in the April 2024 Budget, unchanged for 2026/27. Applies to any rolling 12-month period — not the tax year.
The threshold does not follow the tax year or calendar year. At the end of every calendar month, look back at the previous 12 months of taxable turnover. If the total exceeds £90,000, you have 30 days from the end of that month to notify HMRC. Your effective registration date is then the first day of the following month.
The deregistration threshold sits at £88,000 — £2,000 below registration. If your turnover drops and you want to deregister, you need to demonstrate that the next 12 months will stay below £88,000.
What counts as taxable turnover
Taxable turnover includes all standard-rated, reduced-rated, and zero-rated sales. It does not include exempt sales, out-of-scope supplies, or VAT itself.
A sole trader who also earns residential rental income adds only the trading fees to their taxable turnover — not the rent, which is exempt.
The forward-looking test
There is a second trigger most people overlook. If you have reasonable grounds to believe your taxable turnover will exceed £90,000 in the next 30 days alone — for example, you have just signed a large contract — you must notify HMRC immediately. Registration takes effect from the start of that 30-day window. This catches businesses that complete a single high-value project that breaches the threshold in one transaction.
Should you register voluntarily?
Below £90,000, registration is a choice. It makes clear financial sense when most customers are VAT-registered businesses — they reclaim whatever VAT you add, so it costs them nothing, and you gain full input VAT recovery on your own costs. It also makes sense when you have significant VATable expenses or when larger clients require it as a condition of procurement.
It makes less sense when most customers are private individuals, your business expenses are low, or you operate in a sector where it affects competitiveness with unregistered competitors.
Late registration penalties
HMRC charges penalties on the VAT that should have been collected from the date you should have registered — not from when you actually did. Miss the threshold by 12 months while billing unregistered, and you could owe 20% on a full year's invoices, payable from your own pocket if clients have long since settled and moved on.
The Flat Rate Scheme — and when it actually saves money
The VAT Flat Rate Scheme (FRS) lets eligible small businesses pay a fixed percentage of their gross (VAT-inclusive) turnover to HMRC, rather than calculating the difference between input and output VAT on every transaction. You still charge clients the standard 20% VAT on your invoices — the difference is how much you pay HMRC, which can be less than what you collected.
Flat rates by sector (2026/27)
The limited cost trader trap
In 2017 HMRC introduced the "limited cost trader" category at 16.5% to close a profitable loophole where service businesses with almost no goods costs were keeping a significant portion of VAT collected. You are a limited cost trader if your goods expenditure in a quarter is less than either 2% of your VAT-inclusive turnover or £1,000 — whichever is greater.
At 16.5%, the scheme rarely saves money. You pay roughly the same as under standard VAT accounting and lose the ability to reclaim input VAT on purchases. If this rule applies to your business, staying on the standard scheme is almost always the better choice.
FRS eligibility and exit thresholds
Six VAT mistakes that cost businesses money
Zero-rated sales count toward your £90,000 registration threshold and allow full input VAT recovery. Exempt sales don't count toward turnover but block input VAT recovery on directly related costs. A business with mixed supplies faces partial exemption calculations — and getting the split wrong means either overpaying or underpaying HMRC.
Penalties are calculated on the VAT that should have been collected from the date you should have registered — not when you did. A year of unregistered invoicing that should have included 20% VAT creates a liability you must settle from your own funds, without the ability to recharge clients who have long since closed the job.
Business entertainment — client dinners, hospitality, event tickets — is entirely blocked from input VAT recovery under UK rules, with no exceptions. Staff entertainment is recoverable subject to conditions. This is among the most common targets in HMRC VAT inspections.
New residential builds are zero-rated. Renovations and repairs on existing homes are standard-rated at 20%. Converting a commercial property to residential use qualifies for the 5% reduced rate. Commercial new builds are standard-rated. Always reference HMRC Notice 708 before raising any construction invoice.
VAT is calculated on the discounted price, not the original. If a prompt payment discount is offered and the customer takes it, VAT should have been charged on the discounted amount from the outset. Correcting this requires a VAT credit note, which creates administrative burden and can trigger HMRC queries if done inconsistently.
Since March 2021, the Construction Industry Scheme's Domestic Reverse Charge means subcontractors do not charge VAT to the main contractor — the main contractor self-accounts for it instead. If you supply CIS-reported construction services to a VAT-registered main contractor, you likely should not be adding VAT to your invoice.
How to Calculate VAT in Excel
Three formulas cover every scenario. Assume the net amount is in cell B2 and the VAT rate (as a number, e.g. 20) is in cell C2.
Adding and removing VAT — the correct formulas
Common Excel errors to avoid
Common Excel errors
- ✗ =B2-(B2*0.2) to remove VAT — wrong
- ✗ =B2*0.8 to get net — wrong
- ✗ Hardcoding 1.2 without a rate cell
- ✗ Using Excel alone for MTD submissions
Correct approach
- ✓ =B2/1.2 to remove 20% VAT
- ✓ =B2/(1+C2/100) with a rate cell
- ✓ Named ranges for rate values
- ✓ Bridging software for MTD submissions
Making Tax Digital (MTD) for VAT
Since April 2022, MTD for VAT is mandatory for all VAT-registered businesses without exception. The old Government Gateway VAT return portal no longer accepts manual submissions. You must keep digital VAT records and submit returns using MTD-compatible software.
MTD record-keeping requirements
MTD requires digital records of: the time of supply, the value of supply, the VAT rate charged, and details of input VAT. Invoices and receipts must be retained digitally for at least 6 years. Compatible software falls into two categories: full accounting software (Xero, QuickBooks, FreeAgent, Sage, KashFlow) and bridging software for businesses that want to keep their existing spreadsheet workflow.
VAT penalty regime (post-April 2023)
HMRC replaced the Default Surcharge system with a points-based model designed to be lenient for occasional slips but progressively harsher for habitual non-compliance.