VAT (Value Added Tax) is a consumption tax charged on most goods and services in the UK. Here is everything you need to know as a consumer and small business owner.
| Rate | % | Applied to |
|---|---|---|
| Standard Rate | 20% | Most goods and services |
| Reduced Rate | 5% | Home energy, child car seats, sanitary products, some renovations |
| Zero Rate | 0% | Food, children's clothing, books, newspapers, most transport |
| Exempt | N/A | Insurance, financial services, education, healthcare |
Adding VAT to a net price (ex-VAT to inc-VAT):
Price including VAT = Net price × 1.20 (for 20% VAT)
Removing VAT from a gross price (inc-VAT to ex-VAT):
Net price = Gross price ÷ 1.20
Common mistake: dividing by 0.20 to find the VAT amount is wrong. You must divide by 1.20 to find the net price, then subtract to get the VAT.
UK businesses must register for VAT when their VAT-taxable turnover exceeds £90,000 in any rolling 12-month period. You can also register voluntarily below this threshold — useful for businesses with VATable expenses they want to reclaim.
VAT-registered businesses can reclaim VAT paid on business purchases (input tax) against the VAT they charge customers (output tax). Only the difference is paid to HMRC. This is why VAT is considered neutral for businesses — the final consumer bears the full cost.
Calculate VAT quickly — add or remove VAT from any price at any rate.
VAT Calculator