Breakdown
How it works
To add VAT multiply by 1.2. To remove it, divide by 1.2 — not 20% off the gross (that gives the wrong answer). The VAT element of a gross price is one-sixth of it at 20%.
Formula
Worked example
£1,000 + VAT = £1,200. £1,200 inc VAT → net £1,000, VAT £200. £1,200 − 20% would wrongly give £960.
Frequently asked questions
What is zero-rated vs exempt?
Zero-rated (most food, books, children's clothes, new homes, exports) is taxable at 0% so businesses reclaim input VAT. Exempt (insurance, finance, education, health, residential rent) is outside VAT and input VAT cannot be reclaimed.
What is the 5% rate for?
Domestic energy, children's car seats, energy-saving materials in some cases, mobility aids for the over-60s.
When must a business register?
When taxable turnover in any rolling 12 months exceeds £90,000, or will in the next 30 days. Voluntary registration below that lets you reclaim input VAT.
What is the Flat Rate Scheme?
Small businesses (turnover under £150,000) pay a fixed percentage of gross turnover (e.g. 14.5% for IT consultancy, 16.5% for limited-cost traders) instead of tracking input VAT.