VAT touches almost every purchase in the UK, yet the actual math behind it trips up plenty of people, especially when working backward from a VAT-inclusive price. Here’s the full breakdown, verified against current 2026/27 rates.
The Three UK VAT Rates
- Standard rate: 20% — applies to most goods and services by default, including electronics, clothing for adults, professional services, and restaurant meals
- Reduced rate: 5% — applies to specific items like domestic fuel and power, children’s car seats, and certain energy-saving materials
- Zero rate: 0% — applies to most food, children’s clothing, books, and newspapers; these items are still technically within the VAT system, just taxed at nil
This structure, confirmed on GOV.UK’s official VAT rates page, has remained stable since the standard rate last changed in January 2011.
How to Add VAT to a Price
VAT-Inclusive Price = Net Price × (1 + VAT Rate)
Example: A £250 service at the standard 20% rate:
£250 × 1.20 = £300 total, with £50 being the VAT portion.
How to Remove VAT from a Price
If you know the VAT-inclusive total and need the original net amount:
Net Price = VAT-Inclusive Price ÷ (1 + VAT Rate)
Example: A £300 total at the standard 20% rate:
£300 ÷ 1.20 = £250 net price, confirming the £50 VAT amount.
This reverse calculation matters most for business owners reconciling receipts or figuring out exactly how much VAT they’ve collected across a batch of sales.
Zero-Rated vs Exempt: A Critical Distinction
These two categories sound similar but work completely differently for businesses.
- Zero-rated goods are still within the VAT system, just taxed at 0%. Businesses selling zero-rated goods can still reclaim input VAT on their own purchases and costs.
- Exempt supplies fall entirely outside the VAT system. Businesses making only exempt supplies cannot register for VAT and cannot reclaim any input VAT on their costs, which can make VAT a genuine hidden cost for exempt businesses.
HMRC’s guidance on VAT exemption and partial exemption covers this distinction and its financial impact in more depth.
The VAT Registration Threshold for 2026/27
Businesses must register for VAT once their taxable turnover exceeds £90,000 in any rolling 12-month period, not just the calendar or tax year. Once you cross this threshold, you have 30 days to register. Voluntary registration below the threshold is also allowed, and sometimes beneficial for businesses that want to reclaim input VAT on their own purchases. GOV.UK’s VAT registration guidance has the full process and current threshold confirmed directly.
The Flat Rate Scheme for Small Businesses
Some smaller businesses use the VAT Flat Rate Scheme, paying a fixed percentage of their turnover (rather than the standard 20%) directly to HMRC, based on their specific industry sector. This simplifies bookkeeping considerably, though it can occasionally cost more or less than standard VAT accounting depending on the business’s actual expense structure. GOV.UK’s flat rate scheme guidance lists current sector-specific percentages for businesses considering this option.
Real Business Scenarios
- Invoicing clients: Once VAT-registered, invoices must clearly show the VAT amount separately from the net price, not just a single combined total
- Reclaiming input VAT: Registered businesses can generally reclaim VAT paid on their own business purchases, reducing their net VAT liability to HMRC
- Cross-border sales: Exports outside the UK are generally zero-rated, provided proper evidence of export is retained, while imports face VAT at the point of entry or through postponed VAT accounting
Add or remove VAT at any rate instantly. Use the UK VAT Calculator →
Frequently Asked Questions
What is the current UK VAT rate?
The standard UK VAT rate is 20%, unchanged since January 2011. A reduced rate of 5% applies to specific goods like domestic energy, and a zero rate of 0% applies to most food, books, and children’s clothing.
How do I calculate VAT backward from a total price?
Divide the VAT-inclusive total by 1.20 (for the standard 20% rate) to find the net, pre-VAT price. Subtract that net price from the total to find the exact VAT amount included.
What is the VAT registration threshold for 2026/27?
Businesses must register for VAT once taxable turnover exceeds £90,000 in any rolling 12-month period. You have 30 days to register once you cross this threshold, though voluntary registration below it is also allowed.
What is the difference between zero-rated and VAT-exempt?
Zero-rated goods remain within the VAT system at a 0% rate, and businesses selling them can still reclaim input VAT. Exempt supplies fall entirely outside the VAT system, meaning businesses cannot register for VAT or reclaim input VAT related to those exempt supplies.
Do I charge VAT on exports?
Exports to countries outside the UK are generally zero-rated, provided you retain proper evidence of export. This means no VAT is charged to the customer, though the sale still needs to be reported on your VAT return.
What is the VAT Flat Rate Scheme?
It’s a simplified VAT accounting option for smaller businesses, where you pay a fixed percentage of your total turnover to HMRC based on your industry sector, rather than calculating standard VAT on individual sales and purchases separately.