What is value added tax (VAT)?
Value added tax (VAT) is a consumption tax on goods and services sold in the UK and the Isle of Man. Introduced in 1973, the standard VAT rate currently stands at 20%, though some items qualify for a reduced rate of 5% or zero rating.
Businesses collect VAT when they sell goods and services, adding the tax to prices before remitting it to HMRC.
See also: Value Added Tax Guide
How does our online VAT calculator work?
Our online VAT calculator calculates VAT instantly using a simple three-step process. Enter your amount, select your VAT rate (20%, 5%, or 0%), and the free tool will display your results immediately. The online calculator handles both adding and removing VAT with one click.
When you add VAT, the calculator takes your net amount and applies the VAT percentage. For example, if you are working with the standard rate of 20% VAT, it multiplies your figure by 1.20 to calculate the total including VAT. For the reduced rate of 5%, it multiplies by 1.05.
To deduct VAT from a gross amount at the standard rate, divide the total by 1.20 to find the net amount. The difference shows how much VAT was included in the price.
The advanced version lets you calculate VAT for multiple items at different rates simultaneously. Each line item can use a different tax rate, and the calculator provides breakdowns by rate category plus a combined total. Use the tool for calculating VAT across unlimited transactions.
When should you add VAT vs remove VAT?
The decision to add or remove VAT depends on whether you’re starting with a price before or after tax. Add VAT when you have a net amount (price excluding VAT) and need to calculate what customers pay. Businesses typically add VAT when creating invoices, starting with their base price and applying the appropriate VAT rate to determine the gross amount including VAT.
Remove VAT when you have a gross amount (price with VAT already included) and need to work out VAT separately or find the net amount. Accountants often deduct VAT when processing receipts or calculating VAT owed to HMRC.
Our free VAT calculator lets you easily add or remove VAT online with one toggle. For the standard VAT rate of 20%, adding VAT multiplies by 1.20, while removing it divides by 1.20. The vat calculator handles the mathematics automatically.
Whether preparing customer invoices or processing supplier costs, this online VAT calculator provides both calculation types in a single, convenient tool for accurately calculating VAT rates.
What’s the difference between 20%, 5%, 0%, and VAT-exempt rates in the UK?
The UK uses four VAT rates across different goods and services. The standard rate currently stands at 20% (up from 17.5% in 2011) and applies to most goods and services sold. Electronics, adult clothing, professional services, and hospitality all carry this standard VAT rate when you calculate VAT.
The reduced VAT rate of 5% applies to essential items, including domestic energy, children’s car seats, and sanitary products. A selection of goods and services qualifies for this lower tax rate. The reduced rate of 5% significantly reduces the tax burden compared to the standard VAT rate.
Zero-rated items (0% VAT rate) include most food, children’s clothing, books, and medicines. While technically subject to value-added tax, the 20% rate doesn’t apply. Businesses can still reclaim input VAT on zero-rated supplies.
Exempt items are not subject to VAT, and businesses cannot reclaim input tax. Financial services, education, and healthcare are typically exempt from this consumption tax. Use our VAT calculator to calculate VAT online for standard and reduced rates accurately.
When must you register for VAT?
You only add VAT once your business is VAT-registered. Registration is compulsory when your taxable turnover passes £90,000 in any rolling 12-month period, the threshold HMRC has kept in place since April 2024. You can also register voluntarily below that figure to reclaim input VAT. Once registered, you must keep digital records and file returns through Making Tax Digital, so the rates above become part of every invoice you raise.
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