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 (amount) × (100+VAT%)
So, working out the VAT on £100 at a 20% VAT rate would be £100 × 0.2
This gives you VAT amount of £20 and a gross total of £120
Removing VAT
To remove VAT you calculate (amount) ÷ (100+VAT%)
So, the VAT from a gross total of £100 at a 20% Standard VAT rate would be 100 ÷ 1.2
This 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% VAT, while microwavable popcorn is VAT-free.
VAT on Gingerbread
A gingerbread with chocolate belt will be charged 20% VAT, while the one with chocolate eyes only 0%.
VAT on Biscuits
Biscuits covered with chocolate are taxed at standard 20% rate, however, if it is filled with chocolate, it is VAT-free
VAT on Pets
Pets are taxes at a standard VAT rate, unless it is a rabbit, which is considered a food and therefore is VAT-free
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
has the highest VAT rate in the world at 27%, followed closely by Iceland at 25.5%. Countries that don’t charge VAT at all 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 VAT-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 VAT-free items include museum admissions, antiques and postal services
Pastygate
In 2012, The government’s proposal to start charging VAT on takeaways brought widespread disapproval, the government backed down and the VAT status of pasties remained unchanged
VAT victories
Jaffa Cakes and Tunnock’s Snowballs are just two of the brands that have fought and won VAT victories proving that their products are cakes (VAT exempt) and not biscuits (VAT chargeable)
VAT fails
Innocent insisted their smoothies were actually ‘liquefied fruit salad’ and Lucozade claimed their energy drinks were ‘functional food’. Both lost their battles for VAT exemption
News from the blog
Read the latest updates
Frequently asked questions
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, it is possible to calculate the cost of a product knowing only the VAT amount. First, you have to understand how VAT is calculated to do so.
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.
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