To calculate VAT at the UK standard rate of 20%, multiply the net price by 1.2 to get the price including VAT, or divide a VAT-inclusive price by 1.2 to get the net price. To find just the VAT inside a gross price, divide it by 6. So £120 including VAT is £100 net plus £20 VAT.
That covers most everyday sums, but the mistakes people make with VAT are rarely about multiplication. They come from taking 20% off a gross figure, using the wrong rate for the goods, rounding line by line inconsistently, or forgetting that the flat rate scheme works on a completely different basis. This guide walks through each calculation with worked examples, then covers the rates, the registration threshold and the flat rate scheme for the 2026/27 tax year.
If you just want the answer, our free VAT calculator adds or removes VAT at any rate and shows the net, VAT and gross figures side by side.
Key takeaways
- To add 20% VAT, multiply the net price by 1.2; to remove it, divide the gross price by 1.2.
- The VAT inside a 20% VAT-inclusive price is one sixth of that price, not 20% of it.
- You must register once taxable turnover over the last 12 months goes over £90,000, or if you expect to go over it in the next 30 days alone.
- Flat rate scheme payments are a percentage of your VAT-inclusive turnover, with a 16.5% rate for limited cost businesses.
The UK VAT rates
HMRC sets three rates. According to GOV.UK's VAT rates page:
| Rate | VAT % | Examples given by GOV.UK | Multiply net by | VAT fraction of gross |
|---|---|---|---|---|
| Standard | 20% | Most goods and services | 1.2 | 1/6 |
| Reduced | 5% | Some goods and services, such as children's car seats and home energy | 1.05 | 1/21 |
| Zero | 0% | Most food and children's clothes | 1 | none |
Zero-rated is not the same as exempt. Zero-rated sales are still taxable supplies charged at 0%, and they count towards your VAT taxable turnover. Exempt supplies (such as some insurance and finance) are outside VAT altogether. If you're not sure which rate applies to something you sell, check HMRC's guidance for that product before you price it.
How to calculate VAT: adding 20% to a price
When you have a net price and need the price including VAT:
Gross price = net price × 1.2
VAT = net price × 0.2
Worked example: you quote a client £850 for a day of work.
- VAT: £850 × 0.2 = £170
- Total including VAT: £850 × 1.2 = £1,020
For the reduced rate, use 1.05 instead. A £300 net job at 5% becomes £315, with £15 VAT.
Removing VAT from a gross price
This is where most errors happen. If a receipt says £240 including VAT, the VAT is not 20% of £240 (£48). The 20% was added to the net figure, so you have to reverse that:
Net price = gross price ÷ 1.2
VAT = gross price − net price
Worked example: a supplier invoice totals £240 including VAT.
- Net: £240 ÷ 1.2 = £200
- VAT: £240 − £200 = £40
Taking 20% off the gross gives £192, which is £8 short of the real net price. On one receipt that's small. Across a year of purchase invoices it can distort both your VAT return and your profit figures.
The VAT fraction: 1/6 for 20%
Accountants often use the VAT fraction, which gives the VAT straight from the gross price:
- At 20%, the VAT fraction is 20/120, which simplifies to 1/6.
- At 5%, it's 5/105, which simplifies to 1/21.
So the VAT on £240 gross is £240 ÷ 6 = £40, the same answer as above in one step. The VAT on £63 gross at 5% is £63 ÷ 21 = £3.
A quick check worth memorising: at 20%, VAT is always one sixth of the gross, and the net is always five sixths.
A quick reference table
| Net price | VAT at 20% | Gross price | Gross ÷ 6 check |
|---|---|---|---|
| £10.00 | £2.00 | £12.00 | £2.00 |
| £49.99 | £10.00 | £59.99 | £10.00 (rounded) |
| £100.00 | £20.00 | £120.00 | £20.00 |
| £250.00 | £50.00 | £300.00 | £50.00 |
| £1,000.00 | £200.00 | £1,200.00 | £200.00 |
| £4,166.67 | £833.33 | £5,000.00 | £833.33 |
The last row is useful when you're given a budget that includes VAT. If the client says "we have £5,000 all in", your net fee is about £4,166.67, not £4,000.
Working out VAT on invoices with several lines
On a multi-line invoice you can calculate VAT per line or on the invoice total. The two methods can differ by a penny or two because of rounding. HMRC's main VAT guide (Notice 700) sets out the rounding rules, and the key thing is to pick a method your accounting software applies consistently rather than mixing approaches.
A few practical habits help:
- Store net prices, not gross. Price lists, quotes and product databases are easier to manage net of VAT, with VAT calculated on top.
- Show net, VAT and gross on every invoice. A VAT invoice has specific required details, set out in HMRC's guidance on VAT invoices. If you don't use accounting software yet, our free invoice generator lets you add line items and tax, then download the invoice as a PDF.
- Separate mixed-rate items. If an invoice has standard-rated and zero-rated lines, total each rate separately.
- Don't reclaim VAT you can't evidence. You generally need a valid VAT invoice to reclaim input VAT.
When you must register for VAT
You don't charge VAT at all until you're VAT registered. GOV.UK's registration guidance gives two tests:
- Looking back: you must register if your total taxable turnover for the last 12 months goes over £90,000. This is a rolling 12 months, not your accounting year or the tax year. You must register within 30 days of the end of the month you went over.
- Looking forward: you must register if you expect your taxable turnover to go over £90,000 in the next 30 days alone, for example because you've signed a large contract.
You can also register voluntarily below the threshold. That can make sense if your customers are mostly VAT-registered businesses that can reclaim the VAT you charge, and you have significant VAT on your own costs. It usually makes less sense if you sell mainly to consumers, because adding 20% either raises your prices or cuts your margin.
Keep an eye on the rolling total month by month. A simple spreadsheet that sums the last 12 months of taxable sales is enough, and it's an easy task to automate from your accounting software.
VAT flat rate scheme basics
The flat rate scheme is designed to simplify VAT for smaller businesses. Instead of working out output VAT minus input VAT, you pay HMRC a fixed percentage of your turnover. Key rules from GOV.UK's flat rate scheme guide:
- Joining: you may be able to join if your VAT turnover is £150,000 or less, excluding VAT.
- The calculation: you multiply your flat rate percentage by your VAT-inclusive turnover. This is the part people miss.
- Your rate depends on your business type, unless you're a limited cost business.
- Limited cost businesses pay 16.5%. You count as one if your spending on goods is less than 2% of your turnover, or less than £1,000 a year if your goods cost more than 2%.
- First-year discount: you get a 1% discount in your first year as a VAT-registered business.
- Reclaiming VAT: you generally can't reclaim VAT on purchases, except certain capital assets over £2,000.
- Leaving: you must leave if, on the anniversary of joining, your turnover in the last 12 months was more than £230,000 including VAT (or you expect it to be in the next 12 months), or if you expect income in the next 30 days alone to exceed £230,000 including VAT, according to the full GOV.UK guide.
Flat rate worked example
GOV.UK's own example: you invoice a customer £1,000 plus 20% VAT, so £1,200 in total. As a photographer your flat rate is 11%, so you pay HMRC 11% of £1,200, which is £132. You keep the other £68 of the £200 VAT you charged, but you can't reclaim VAT on most of your purchases.
For a limited cost business at 16.5%, the same £1,200 invoice means paying £198 to HMRC, leaving just £2 of the VAT charged. That's why many service businesses with few physical purchases find the flat rate scheme no longer helps them. Run the numbers both ways before joining.
Common VAT calculation mistakes
| Mistake | What goes wrong | Fix |
|---|---|---|
| Taking 20% off a gross price | Understates the net and overstates the VAT you think you paid | Divide by 1.2, or take 1/6 for the VAT |
| Using 20% for everything | Zero-rated or reduced-rate goods get overcharged | Check the rate for each product line |
| Calculating flat rate on net turnover | Underpays HMRC | Apply the flat rate to VAT-inclusive turnover |
| Checking the threshold against the tax year | Late registration and penalties | Track a rolling 12-month total |
| Pricing gross when customers are businesses | Confusing quotes | Quote net plus VAT for B2B work |
Pricing with VAT in mind
VAT affects your margin directly if you sell to consumers. If you're VAT-registered, the VAT you charge isn't your money, so always work out margin on the net price. Our guide to margin vs markup shows how to set a price that hits a target margin and then add VAT, and the profit margin calculator does the sum for you. If you need a quick percentage of anything else, the percentage calculator is handy.
For employees, VAT is only one piece of the picture. If you're comparing self-employment with a salaried job, our take-home pay guide breaks down income tax and National Insurance for 2026/27.
Make It Flow builds automations for accounting firms and small businesses, such as pulling invoice data into your bookkeeping or flagging when you're approaching the VAT threshold. People stay in charge of the VAT return itself. If that sounds useful, see our page for accounting firms or talk to us.
FAQ
How do I calculate 20% VAT on a price?
Multiply the net price by 0.2 to get the VAT, or by 1.2 to get the total including VAT. For example, £500 net has £100 VAT and a gross price of £600. If you start from a price that already includes VAT, divide by 1.2 instead to get the net figure.
How do I work out VAT backwards from a total?
Divide the VAT-inclusive total by 1.2 to get the net price, then subtract that from the total to get the VAT. Or divide the total by 6, which gives the VAT directly at 20%. For a £90 total, the net is £75 and the VAT is £15.
Why is the VAT fraction 1/6 and not 1/5?
Because the 20% is calculated on the net price, not the gross. A gross price is 120% of the net, so VAT is 20/120 of the gross, which simplifies to one sixth. Using one fifth (20% of gross) overstates the VAT. At the 5% reduced rate the fraction is 1/21.
What is the VAT threshold for 2026/27?
GOV.UK states you must register when your taxable turnover over the last 12 months goes over £90,000, or if you expect it to go over £90,000 in the next 30 days alone. The 12 months are rolling, so check your total at the end of every month, not just at your year end.
Is the flat rate scheme worth it?
It depends on your costs and your sector's rate. It suits businesses with low VAT-able purchases whose flat rate is well below 16.67% of VAT-inclusive sales. If you're a limited cost business paying 16.5%, the saving is usually tiny. Compare a year of normal VAT returns against the flat rate before you apply.
Do I charge VAT if I'm not registered?
No. You can't charge VAT or show it on invoices unless you're VAT registered. Your prices are simply your prices. Once you register, you must start charging VAT from your effective date of registration, so plan any price changes and customer communications in advance.
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