Guides
What is the VAT Registration Threshold in the UK
18 April, 2024•7 mins
How to calculate VAT
Adding VAT
The calculation for adding VAT is:Multiply the net amount by the VAT rate to find the tax
For example: £100 × 0.2 = £20This gives you a VAT amount of £20 and a gross total of £120
Removing VAT
To remove VAT you calculate:Divide the total (gross) amount by 1 plus the VAT rate to get the net value
For example: £100 ÷ 1.2 = £83.33This gives you a net total of £83.33, with the remaining £16.67 as VAT
What are the current UK VAT rates?
20%
The current standard rate of VAT in the UK is 20%. Most VAT on products and services in the UK are set at this rate.
5%
On some products and services such as home energy, mobility seats for elderly, nicotine patches and children’s car seats, a 5% rate applies
0%
For some products and services, there is a 0% rate. This applies to things like kids clothing and books, equipment for disabled people
ANNA automatically calculates your VAT so you don’t have to
ANNA calculates VAT on your transactions, receipts and invoices, sends reminders, and sets money aside for your tax bill
Value Added Tax facts
VAT on Popcorn
Puffed up popcorn is considered a luxury and taxed at 20%, while the microwavable version is exempt.
VAT on Gingerbread
A gingerbread with chocolate belt will be charged 20%, while the one with chocolate eyes only is exempt.
VAT on Biscuits
Biscuits covered with chocolate are taxed at the standard 20% rate; however, if they are filled with chocolate, they are exempt.
VAT on Pets
Pets are taxed at the standard rate, unless it is a rabbit, which is considered a food item and therefore is exempt.
Value Added Tax
was first introduced in France in 1954 and made its first appearance in the UK on 1 April 1973.
UK VAT rate
was initially set at 10% and has gradually increased over the years, rising to 20% in 2011, and it has remained at that level ever since.
Charging VAT
is one of the requirements of being an EU member, and no country was allowed to charge a standard rate below 15% until December 2015.
Hungary
Hungary has the highest rate globally at 27%, followed by Iceland at 25.5%. Countries without this tax include the Bahamas, Hong Kong, Saudi Arabia, and Qatar.
60 to 160
In the tax year 2022/23 UK VAT receipts were nearly £160 billion. In 2000/01 VAT receipts were just £60 billion.
Businesses in the UK
don’t need to register for VAT if their taxable turnover is under £90,000 per year.
Zero rate VAT
products in the UK include: children’s clothes, most food, books and prescription medicine. Other exempt items include museum admissions, antiques and postal services.
Pastygate
In 2012, the government’s proposal to tax hot takeaway food brought widespread disapproval, so they backed down and the tax status of pasties remained unchanged.
VAT victories
Jaffa Cakes and Tunnock’s Snowballs are just two of the brands that have fought and won tax cases, successfully proving their products are cakes (exempt) and not biscuits (standard-rated).
VAT fails
Innocent insisted their smoothies were actually ‘liquefied fruit salad’, and Lucozade claimed their energy drinks were ‘functional food’. Both lost their cases for tax exemption.
News from the blog
Read the latest updates
VAT Calculation FAQ
When can you charge customers VAT?
You can charge your customers VAT as soon as you become VAT registered. It is mandatory to register for VAT when your turnover reaches £90,000 a year, otherwise it is totally up to you.
Find out more in our blogpost – When and how should I register for VAT
Find out more in our blogpost – When and how should I register for VAT
Is VAT Calculated on net or gross?
VAT is calculated on net value, after you add VAT tax to your net value it becomes a gross value
Is it possible to calculate the cost of a product knowing only the VAT amount?
Yes – you can work out the original cost if you only know the VAT amount.
If a product costs £100 and you apply a standard VAT rate of 20% to it, the amount of VAT will be £100 x 0.2 = £20
Let’s say you don’t know the cost of the product X, but you know that the VAT paid was £20, the formula will be 0.2X=£20, therefore X=£20/0.2, X=£100
If a product costs £100 and you apply a standard VAT rate of 20% to it, the amount of VAT will be £100 x 0.2 = £20
Let’s say you don’t know the cost of the product X, but you know that the VAT paid was £20, the formula will be 0.2X=£20, therefore X=£20/0.2, X=£100
What is the flat rate scheme?
VAT Flat Rate Scheme (FRS) is a simplified method of accounting for VAT which is convenient for small businesses. Instead of calculating and reclaiming the VAT on each purchase and sale separately, you simply pay a fixed percentage of your business’s turnover to HMRC. The flat rate percentages range from 4% to 14.5%, depending on the business sector. We have a blogpost that explains it in detail.
How to Calculate VAT in Excel
You will need to organise your sales and purchases in different rows and net value, added VAT and gross value in rows. Here is a link to our blogpost that explains it in detail.
What is a reverse VAT calculator and when should you use it?
A reverse VAT calculator (or VAT backwards calculator) extracts the original amount before VAT from a price that already includes VAT. It's useful when you need to:
- Determine how much VAT you've paid on purchases for expense claims
- Separate net amounts from VAT on invoices for accounting purposes
- Set pre-VAT prices based on desired final selling prices
VAT Calculation Formula and Examples
Understanding the different VAT calculation formulas helps ensure accurate tax reporting:
| Calculation | Formula |
|---|---|
| To add VAT to Net Amount | Net × (1 + VAT rate) = Gross |
| To extract VAT from Gross Amount | Gross ÷ (1 + VAT rate) = Net |
| VAT Amount from Net | Net × VAT rate = VAT |
| VAT Amount from Gross | Gross × (VAT rate ÷ (100 + VAT rate)) = VAT |
What is VAT reverse charge?
The VAT reverse charge means the buyer, instead of the seller, is responsible for reporting VAT on a transaction. Normally, the supplier will charge VAT on goods or services sold, however, in this case the seller does not add VAT to the invoice, and the buyer records both the VAT they would have paid and the VAT they can reclaim. This system helps prevent tax fraud and is used in certain industries like construction and electronics and reduces the administrative burden for international suppliers.
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