UK VAT
Three rates, and the interesting part is which applies. Standard is 20%, reduced 5% for domestic fuel and certain energy-saving materials, zero for most food, books and children’s clothing. A VAT-registered business also has to separate the VAT it can reclaim from the VAT it cannot — and a non-registered one simply absorbs it.
| Line | Amount | Note |
|---|---|---|
| Amount entered | £1000.00 | net |
| Rate | 20% | standard |
| Net | £1000.00 | excluding VAT |
| VAT | £200.00 | 16.7% of the gross |
| Gross | £1200.00 | including VAT |
| Reclaimable VAT | £200.00 | recovered |
| Net cost | £1000.00 | after reclaiming |
| Turnover | £60,000 | threshold £90,000 |
A VAT-registered business reclaims the 200.00 of input VAT, so the real cost is the net 1000.00.
VAT = net × rate · Then gross = net + VAT.
net = gross / (1 + rate) · Not gross × (1 − rate).
rate / (1 + rate) · One sixth at 20%.
£90,000 rolling 12 months · Plus the next 30 days.
A clear path from inputs to results.
Three rates, and the interesting part is which applies. Standard is 20%, reduced 5% for domestic fuel and certain energy-saving materials, zero for most food, books and children’s clothing.
How to use
- Enter the amount and say whether it includes VAT.
- Choose the rate.
- Say whether the VAT is reclaimable.
- Read the net, the VAT and the true cost.
The formula
Reference: VAT Act 1994: s.2(1) standard rate, Schedule 7A reduced, Schedule 4 zero-rated.
Worked example
£1,000 net at the standard rate
- £1,000 net, standard rate, VAT-registered business.
- 1
VAT is 20% of £1,000, or £200.
- 2
The gross is £1,200.
- 3
A registered business reclaims the £200, so the real cost is £1,000.
- 4
A consumer pays £1,200 and cannot reclaim it.
- 5
Working backwards from £1,200, the net is £1,000 — not £960.
£200 VAT · £1,200 gross · £1,000 net cost to a business.
Interpreting the result
The direction of the calculation is where errors happen. At 20% the VAT is one sixth of the gross, not one fifth: dividing a gross figure by 1.2 is right, subtracting 20% is wrong by £40 on a £1,200 invoice.
Assumptions & limitations
- A single rate applied to the whole amount.
- No mixed or partially exempt supply.
- No Northern Ireland goods treatment.
- No margin scheme or reverse charge.
Frequently asked questions
What is zero-rated and what is exempt?
They look the same on an invoice and are not: a zero-rated supply is taxable at 0%, so the business can reclaim input VAT; an exempt supply is outside the scope, so it usually cannot.
Can I reclaim VAT on everything?
Only on purchases used to make taxable supplies. A partially exempt business has to apportion, which is a separate calculation.
Does the rate ever change?
It has been 20% since 2011. The reduced and zero schedules change more often, usually at a Budget.
When must I register?
When taxable turnover exceeds £90,000 over the previous twelve months, or is expected to exceed it in the next thirty days.
What about the reduced rate?
5% applies to domestic fuel and power, energy-saving materials, and a few other categories in Schedule 7A. It is not a general concession.
Methodology last reviewed 2026-10-22. Results are informational and not financial or engineering advice — see our disclaimer.