What is VAT?

How to add VAT or remove VAT from an amount.

Value Added Tax (VAT), is a general type of consumption tax assessed on the value added to the sales of goods and services in the United Kingdom.
It applies more or less to all products whenever a value is added during the production stage and the final sale.

VAT is paid to the revenue authorities by the seller of the goods, like in the UK, VAT is collected on behalf of HM Revenue & Customs by companies.
The fact is, VAT is also paid by the buyer to the seller as part of the price of the goods, which makes it an indirect tax.

Here is an example, when a company builds a car in the UK, the manufacturer is charged VAT on all of the materials it purchases in order to produce the car.
Once the car is set for the market, the consumer who buys it must pay the applicable VAT.

All goods and services are either VAT-rated or VAT-exempt.

Although VAT charges vary based on goods at different levels, the standard rate for most items is 20%.

Other items such as mobility aids for the elderly, electricity and gas for domestic and residential use, smoking cessation products and much more are tagged with a Reduced Rate of 5%.

Lastly, the Zero Rate category, which is where a whole lot of items fall under, items like Protective boots and helmets for industrial use, baby wears, aircraft repair and maintenance, printing of brochures and leaflets, building services for disabled people, etc.

Private education, rent, finance and insurance, gambling, health and postal services are all VAT-exempt features.

Who needs to register for VAT?

All businesses with sales above £85000 (as of 1st April 2017) in a year must register for VAT, or better still, you could make a voluntary registration even before hitting the threshold.

How to calculate VAT?

The easiest way to calculate VAT is to use our FREE online VAT calculator.
However, if you want to do the maths yourself, here are the formulas on how to add VAT or remove VAT from an initial number:

Remove VAT from gross number:

First you calculate the VAT amount. To do this you divide the gross amount by 100 and then multiple by the percent number (i.e. If it is 20%, multiply by 20).
Now subtract from the gross amount the VAT amount and the result will be the net amount.

Add VAT to a net number:

Simply multiply the net amount by 1 + the VAT percentage number.
(i.e. If it is 20%, multiply by 1.20), and the result will be the gross amount.

For more info about VAT calculations, check the Wikipedia VAT page.

What's the current VAT rate in the UK?

The current VAT standard rate is 20%.
The last change to the standard VAT rate was on 4 January 2011, when the then Chancellor George Osborne raised it from 17.5%.

How do VAT rates in the UK differ from other countries in the European Union VAT area?

Value Added Tax (VAT) across states in the European Union VAT area vary substantially.
Check our list of VAT rates across the European Union VAT area to find out more.

Want to find out more about VAT rates?
The HMRC website is the website of reference for all matters VAT related.

Want to calculate VAT for a new number ?
Return to the online VAT calculator.