VAT Calculator

How to use

Pick a direction, type one number, and read the other two. Remove starts from a VAT-inclusive total and splits it into net and tax — that is the receipt and expense-claim case. Add starts from your price before tax and gives you the figure to invoice. Choose the rate that applies to what you're selling or buying; the 20% standard rate is right far more often than not.

The working is shown as arithmetic rather than just a result, so you can check it or repeat it without the tool.

Removing VAT: divide, don't subtract

This is the calculation the tool exists for, and the one hand arithmetic gets wrong. Take a £120.00 total at 20%:

• Correct: £120.00 ÷ 1.20 = £100.00 net, so VAT = £120.00 − £100.00 = £20.00.
• Wrong: 20% of £120.00 = £24.00, which overstates the tax by £4.00 and understates the net by the same amount.

The reason is that 20% was never applied to £120.00. It was applied to £100.00, and the total is what came out. To undo a multiplication you divide by the same factor, which is why 1.20 — not 20% — is the number that appears in the sum. The shortcut worth memorising: at 20% the tax is exactly 1/6 of any VAT-inclusive total.

Adding VAT: the easy direction

Multiply by 1.20. A £250.00 fee becomes £300.00 on the invoice, of which £50.00 is VAT you are collecting rather than earning. Nobody miscalculates this one — but plenty of new traders quote £250.00 to a customer, forget they must now add tax to it, and end up absorbing £50.00 out of their own margin because the price was already agreed. If you have just registered, re-check your published prices before your first invoice, not after.

Which rate applies

• Standard rate — 20%. Most goods and services, including professional fees and non-essential retail.
• Reduced rate — 5%. Domestic energy, children's car seats, mobility aids for the elderly and some home-insulation work.
• Zero rate — 0%. Most food, books and newspapers, children's clothes and footwear, and public transport fares.

The 5% rate has its own fraction: a £100.00 household energy bill contains £4.76 of VAT, not £5.00 — 1/21 of the total. Getting the rate right matters more than the arithmetic, because using 20% where 5%applies is a 4× error, not a rounding one.

Zero-rated is not the same as exempt

Both mean the customer pays no VAT, so they look identical from the buyer's side. For a seller they are entirely different, and the distinction decides whether you can reclaim tax on your costs:

• Zero-rated supplies carry VAT at 0%. They count toward your registration threshold, they belong on your VAT return, and you can claim back the VAT on the costs of making them. Most food, books and newspapers, children's clothes and footwear, and public transport fares.
• Exempt supplies — insurance, most financial services, postage stamps, and much education and healthcare — sit outside the system. You generally cannot claim back the VAT on the costs behind them.
• Out of scope is a third category again, covering things like statutory fees and genuinely non-business activity.

A greengrocer selling zero-rated food can register and claim back the tax on their van and their rent. A landlord or a lender making exempt supplies generally cannot. Same zero on the customer's bill, opposite consequences for the business.

Registering, and what changes when you do

Registration is compulsory once taxable turnover passes £90,000 in any rolling 12-month window — checked month by month, not at your year end. You must also register if you expect to cross it in the next 30 days on its own. Once registered:

• You charge VAT on your sales and show your VAT registration number on every invoice.
• You reclaim VAT on business purchases, so what you pay over is the difference — output tax minus input tax.
• You file returns digitally under Making Tax Digital, usually quarterly, and keep records in compatible software. Paper spreadsheets alone no longer satisfy this.
• Deregistering later is possible if turnover falls below the deregistration threshold, but voluntary registration is easier to enter than to leave.

Two schemes change the arithmetic enough that this calculator stops matching your return. The Flat Rate Scheme has you pay a fixed percentage of gross turnover instead of tracking input tax line by line. The Cash Accounting Scheme shifts the timing to when money actually moves rather than when invoices are dated, which helps if customers pay late. Both are worth asking an accountant about before your first return, not after.

Where this fits with your other numbers

• Putting it on paper. A compliant invoice needs the net, the VAT per rate, the gross and your VAT registration number. Build one with the invoice generator rather than retyping the layout each time.
• What actually reaches you. VAT passes through your business; your own income is what's left after it and after tax. If you pay yourself a salary, check your take-home pay so you are planning around the net figure rather than turnover.
• Set the money aside. The tax you collect is not yours to spend. Holding a quarter's worth in a separate account is the cheapest cash-flow discipline there is.

Tips and common mistakes

• Never subtract the rate from a gross figure. Divide by 1.20. The wrong method is off by £4.00 on £120.00 and scales with the amount.
• Split mixed receipts by rate. A supermarket total combining food and household goods cannot be unpicked with one division — the VAT line on the receipt is the only reliable figure.
• Don't treat gross turnover as revenue. The tax element was never yours, and the return will ask for it whether you kept it or not.
• Round at the invoice, not at every step. Rounding each line to the penny then summing can leave you a penny or two off; that is normal and not worth chasing.
• Check the rate, not just the sum. The arithmetic is trivial; picking the wrong rate for a product is the error that actually costs money. When unsure, look it up with HM Revenue & Customs (HMRC).