VAT Calculator

What Is VAT and How Does It Work?

Value Added Tax (VAT) is a consumption tax applied to goods and services in the UK and many other countries. If you run a business or work as a freelancer, understanding how to calculate VAT is essential for accurate pricing, invoicing, and staying compliant with HM Revenue & Customs (HMRC).

How to Calculate VAT

There are two common VAT calculations you will need:

Adding VAT (Price Excluding VAT → Price Including VAT)

To add VAT to a price, multiply the original amount by (1 + VAT rate / 100). For the standard UK rate of 20%, that means multiplying by 1.20. For example, £100 + 20% VAT = £120.

Removing VAT (Price Including VAT → Price Excluding VAT)

To remove VAT from a price that already includes it, divide the total by (1 + VAT rate / 100). For 20% VAT, divide by 1.20. For example, £120 including VAT ÷ 1.20 = £100 excluding VAT.

UK VAT Rates (2024/2025)

The UK currently has three main VAT rates:

• Standard rate (20%) — applies to most goods and services
• Reduced rate (5%) — applies to certain items like home energy and children's car seats
• Zero rate (0%) — applies to items like food, books, children's clothing, and public transport

Do I Need to Register for VAT?

In the UK, you must register for VAT if your VAT taxable turnover exceeds £90,000 (threshold for 2024/2025). Even if your turnover is below this threshold, you can voluntarily register for VAT, which may allow you to reclaim VAT on your business expenses. Many freelancers and small businesses choose to register voluntarily to appear more established and to reclaim input VAT on tools, equipment, and services.

VAT on Invoices

If you are VAT-registered, your invoices must include specific information: your VAT registration number, the date of issue, a unique invoice number, your name and address, your customer's name and address, a description of the goods or services, the net amount, the VAT rate applied, and the total amount payable. Using an invoicing app like LoveInvoice makes this effortless — our templates are designed to include all the required VAT information automatically.

Flat Rate VAT Scheme

The Flat Rate Scheme is a simplified VAT accounting scheme for small businesses in the UK. Instead of calculating VAT on every sale and purchase, you pay a fixed percentage of your VAT-inclusive turnover to HMRC. The percentage depends on your business type. You keep the difference between what you charge your customers and what you pay to HMRC.

Common VAT Questions

What is the difference between net and gross?

The net amount is the price before VAT is added. The gross amount is the total price including VAT. When you see a price displayed as "£100 + VAT", the total you pay is the gross amount.

Can I reclaim VAT on my business expenses?

Yes, if you are VAT-registered, you can reclaim the VAT you pay on business-related purchases (input VAT) against the VAT you charge your customers (output VAT). You must keep valid VAT invoices for all purchases you want to reclaim.

Do I charge VAT on invoices to overseas clients?

This depends on the location of your customer. If you sell services to a business in another country, the place of supply rules determine whether you charge VAT. Generally, B2B services to EU and non-EU businesses are outside the scope of UK VAT, meaning you do not charge VAT.