VAT trips up smart people all the time. Not because the maths is hard — it’s genuinely simple — but because most of us learned it backwards, or picked up a shortcut that quietly gives the wrong answer.
This guide walks you through both directions: adding VAT to a price and removing it from one. Real numbers, no jargon. And if you’d rather skip the arithmetic entirely, our free VAT calculator does both in one click.
What Is VAT, Actually?
VAT — Value Added Tax — is a consumption tax added to most goods and services in the UK. Businesses registered for VAT charge it on top of their prices, then pass what they’ve collected (minus what they’ve paid on their own purchases) to HMRC.
You don’t need to understand the whole tax system to calculate it. You just need two formulas. That’s it.
UK VAT Rates at a Glance
| Rate | Where it applies |
|---|---|
| 20% (standard) | Most goods and services — this is the one you’ll use 90% of the time |
| 5% (reduced) | Home energy, children’s car seats, some building work |
| 0% (zero-rated) | Most food, books, children’s clothing |
Everything below uses the standard 20% rate unless stated otherwise. If you’re on the 5% rate, swap 1.2 for 1.05 in every formula.
The £90,000 VAT Threshold: When You Must Register
One of the most-searched VAT questions in the UK is also one of the most misunderstood: at what point do I actually have to register?
The answer: £90,000 of taxable turnover in any rolling 12-month period. Not the tax year, not the calendar year — any 12 consecutive months. Cross it, and you must register with HMRC within 30 days.
Three things people get wrong about the threshold:
- It’s turnover, not profit. A business making £5,000 profit on £95,000 of sales still has to register. HMRC cares about what passes through your hands, not what you keep.
- Zero-rated sales count toward it. Selling mostly zero-rated goods (like basic food)? Those sales still push you toward the threshold — they’re taxable supplies at 0%, not exempt ones. VAT-exempt sales (like insurance or finance) don’t count.
- There’s a forward-looking test too. If you land a contract tomorrow that will push you over £90,000 in the next 30 days alone, you must register now — not after the money arrives.
Miss the deadline and HMRC can backdate your registration, meaning you owe VAT on sales you already made — out of your own pocket. Check your rolling 12-month turnover at the end of every month; it takes five minutes and saves nasty surprises.
Do you need to charge VAT as a sole trader or freelancer? Only if you’re VAT-registered — and registration only becomes mandatory at the £90,000 threshold. Below that, it’s your choice. Voluntary registration can pay off: you reclaim the VAT on everything you buy for the business (laptop, software, tools — roughly £800 back on £5,000 of spending), and bigger clients often expect a VAT number on invoices.
The catch is who your customers are. If they’re VAT-registered businesses, the VAT you charge costs them nothing — they reclaim it. But if your customers are ordinary consumers, that extra 20% lands squarely on them. You either absorb it (thinner margins) or charge more than unregistered competitors. For freelancers selling to the public, staying unregistered below the threshold is usually the smarter move.
How to Add VAT to a Price
Starting from a net price (before VAT) and need the total your customer pays? Multiply by 1.2.
The formula: Net price × 1.2 = Gross price (including VAT)
Let’s do it properly:
- Net price: £100
- £100 × 1.2 = £120
- The VAT portion is £120 − £100 = £20
Bigger example, the kind you’d see on a real invoice:
- Net price: £1,800 (say, a builder’s quote)
- £1,800 × 1.2 = £2,160
- VAT: £360
That’s the whole trick. The 1.2 is just shorthand for “the original price plus 20% of itself.” If you’re ever unsure, you can do it the long way — 20% of £100 is £20, add it on — but the × 1.2 shortcut is faster and it’s what every calculator uses.
How to Remove VAT from a Price
This is the one people actually search for — and the one most people get wrong.
You’ve got a price that already includes VAT (a supplier invoice, a receipt, a quote) and you need the net figure underneath. The formula: divide by 1.2.
The formula: Gross price ÷ 1.2 = Net price (before VAT)
Worked examples:
- Gross: £120 → £120 ÷ 1.2 = £100 net (VAT was £20)
- Gross: £360 → £360 ÷ 1.2 = £300 net (VAT was £60)
- Gross: £240 → £240 ÷ 1.2 = £200 net (VAT was £40)
This matters more than you’d think. If you’re VAT-registered, the VAT buried inside a supplier’s invoice is money you can reclaim from HMRC — but only if you extract it correctly. Get the division wrong and you’re either overclaiming (HMRC won’t love that) or leaving your own money on the table.
Try it on our free VAT calculator — punch in any gross price and it splits out the net and VAT instantly.
Why Subtracting 20% Is Wrong
Here’s the mistake almost everyone makes at least once. You see £120 including VAT and think: “20% off £120 is £24, so the net must be £96.”
Wrong. The net is £100, not £96.
Why? Because the 20% VAT was calculated on the original £100, not on the final £120. Twenty percent of £100 is £20. Twenty percent of £120 is £24 — a different number entirely. When you subtract 20% from the gross, you’re taking a bigger bite than the actual VAT.
Rule of thumb: VAT is added to the net, so it must be divided out of the gross. Multiply going up, divide coming down. Never subtract the percentage from the total.
Quick Mental-Math Tricks
For 20% VAT, a few shortcuts make life easier:
- To find the VAT inside a gross price: divide by 6. That’s because 20 out of 120 simplifies to 1/6. So £300 gross → £300 ÷ 6 = £50 VAT, net £250.
- To add VAT roughly: find 10% (just move the decimal), then double it and add. £250 → 10% is £25 → double is £50 → total £300.
- The 1.2 / ÷ 1.2 pair: tattoo these on your brain. Adding VAT: × 1.2. Removing VAT: ÷ 1.2. Everything else flows from there.
How Much Is VAT? Quick Reference Table
Sometimes you just want the number. Here’s 20% VAT on common amounts — net price, VAT, and total:
| Net price | VAT (20%) | Total |
|---|---|---|
| £25 | £5 | £30 |
| £50 | £10 | £60 |
| £75 | £15 | £90 |
| £100 | £20 | £120 |
| £200 | £40 | £240 |
| £500 | £100 | £600 |
| £1,000 | £200 | £1,200 |
Going the other way (gross → net)? Divide the total by 1.2: £60 ÷ 1.2 = £50 net, £10 VAT. Same table, read backwards.
VAT-Inclusive vs VAT-Exclusive Prices
One more source of confusion: which price are you actually looking at?
- VAT-exclusive (net): the price before VAT. Common in B2B quotes, trade catalogues, and freelancer day rates. You’ll see “£300 + VAT” or “ex VAT.”
- VAT-inclusive (gross): the price with VAT baked in. Standard on shop shelves, restaurant menus, and consumer receipts — UK law requires consumer-facing prices to include VAT.
Before you calculate anything, check which one you’re starting with. Adding VAT to a price that already includes it is one of the most expensive typos in small business — your customer gets charged VAT twice.
What Must a VAT Invoice Show?
If you’re VAT-registered, your invoices have legal requirements — a plain “£360 please” won’t cut it. Every VAT invoice needs:
- Your business name and address
- Your VAT registration number
- A unique invoice number and the invoice date
- A description of the goods or services
- The VAT rate charged (e.g. 20%)
- The net amount, the VAT amount, and the gross total — shown separately
Why does this matter to you as a buyer? Because without a proper VAT invoice showing the supplier’s VAT number, you can’t reclaim the VAT on that purchase. If a supplier’s paperwork looks sloppy, chase them for a correct invoice before your VAT return goes in.
And since Making Tax Digital, most VAT-registered businesses must keep digital records and file their VAT returns through HMRC-compatible software — paper returns and manual spreadsheets are largely history. If you’re newly registered, set up compliant software before your first return is due.
One special case worth knowing: in UK construction, the domestic reverse charge flips the usual responsibility — the customer, not the supplier, accounts for the VAT on the invoice. If you work in building trades and a supplier’s invoice says “reverse charge applies,” that’s why.
VAT Around the World
VAT isn’t just a UK thing. If you deal with international clients or suppliers, the rates differ:
| Country | Standard rate |
|---|---|
| UK | 20% |
| Germany | 19% |
| France | 20% |
| Ireland | 23% |
| Netherlands | 21% |
| Italy | 22% |
| Australia (called GST) | 10% |
The maths works exactly the same everywhere — just swap the rate. Germany’s 19% means × 1.19 to add, ÷ 1.19 to remove. Australia’s 10% GST means × 1.1 and ÷ 1.1.
When You’ll Actually Use This
A few everyday situations where these formulas earn their keep:
- Writing invoices: your day rate is £300 ex VAT — the invoice total is £360. Get it right and your client can reclaim their input VAT without queries.
- Checking supplier bills: a £600 invoice arrives — is the net really £500? (£600 ÷ 1.2 = £500. Yes.)
- Reclaiming VAT: every quarter, you total up the VAT you’ve paid suppliers and subtract it from the VAT you’ve charged customers. Accurate extraction = accurate return.
- Comparing prices: one supplier quotes £200 + VAT, another quotes £240 all-in. They’re the same price (£240). The formulas let you compare like with like.
5 Mistakes That Cost People Money
- Subtracting 20% instead of dividing by 1.2 — always gives a net figure that’s too low.
- Adding VAT twice — mistaking a gross price for a net one and charging VAT on top again.
- Using the wrong rate — slapping 20% on something that’s zero-rated (like most food) or reduced-rated.
- Charging VAT when you’re not registered — only VAT-registered businesses can charge it. Below the £90,000 turnover threshold, most small businesses aren’t registered and shouldn’t add VAT at all.
- Mixing up net and gross on invoices — your invoice must show the net, the VAT amount, and the gross separately, plus your VAT registration number. Without a proper VAT invoice, your customer can’t reclaim.
Frequently Asked Questions
How do you remove VAT from a price?
Divide the VAT-inclusive (gross) price by 1.2 at the standard 20% rate. Example: £240 ÷ 1.2 = £200 net, meaning £40 of the total was VAT. Never just subtract 20% — that gives the wrong answer.
What is the VAT formula?
To add VAT: net price × 1.2 = gross price. To remove VAT: gross price ÷ 1.2 = net price. To find just the VAT amount inside a gross price: gross − (gross ÷ 1.2). At the reduced 5% rate, replace 1.2 with 1.05.
How do I add 20% VAT to a price?
Multiply the net price by 1.2. For example, £250 × 1.2 = £300, where £50 is the VAT. You can also calculate 20% of the price and add it on — same result, just slower.
What is 20% VAT on £100?
£20 — making the VAT-inclusive total £120. A handy check: at 20%, the VAT inside any gross price is always the gross divided by 6 (£120 ÷ 6 = £20).
Do I need to be VAT registered to charge VAT?
Yes. In the UK you must charge VAT only if your business is VAT-registered (mandatory once taxable turnover passes £90,000 in a 12-month period, or voluntarily before that). Unregistered businesses must not add VAT to their prices.
What is the UK VAT threshold?
£90,000 of taxable turnover in any rolling 12-month period (2025/26 tax year). Cross it and you must register with HMRC within 30 days. It’s based on turnover, not profit — and zero-rated sales count toward it. If you expect to exceed it in the next 30 days alone (say, from one big contract), you must register before those sales happen.
Do I need to charge VAT as a sole trader?
Only if you’re VAT-registered. Registration becomes mandatory at £90,000 turnover, but you can also register voluntarily below that. Voluntary registration suits freelancers whose clients are VAT-registered businesses (they reclaim the VAT, so it costs them nothing) and who want to reclaim VAT on their own purchases — but it’s usually a bad deal if you sell mainly to consumers, who’d bear the full 20%.
Can I claim VAT back on business purchases?
Yes, if you’re VAT-registered. Every quarter you tot up the VAT you’ve charged customers (output VAT) and subtract the VAT you’ve paid suppliers (input VAT) — you pay HMRC the difference, or get a refund if you’ve paid more than you charged. Keep proper VAT invoices for every purchase you reclaim on; without them, HMRC can disallow the claim.
Is there VAT on food?
Most basic food is zero-rated (0% VAT) — bread, milk, fruit, vegetables, and similar groceries. But the exceptions are famous: hot takeaway food, restaurant meals, confectionery, crisps, and fizzy drinks are standard-rated at 20%. The Jaffa Cake court case (cake, zero-rated, not a biscuit) is the stuff of tax legend.
How do I work out the VAT from a total price?
Divide the gross total by 6 at the 20% rate — that gives you the VAT portion directly. Example: £300 gross ÷ 6 = £50 VAT, so the net is £250. (It works because 20 out of 120 simplifies to one-sixth.)
Don’t fancy doing it by hand? Our free VAT calculator adds or removes VAT from any amount instantly — net, VAT, and gross, all shown at once. And if you’re browsing for more, FaridiaTech has 106 free calculators and tools, no signup needed.