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How do I calculate UK VAT?

Once you are registered for VAT you have some extra obligations.


You must add VAT to your sales invoices and charge the right amount of VAT for the type of good or services your are selling. You have to keep VAT records, submit a VAT return to HMRC (usually quarterly) and pay over any VAT due.


Most items have 20% VAT but there are exceptions.


You have to add VAT to your sales from the date of your VAT registration even if you are still waiting for your VAT number. Once you have a VAT number this has to be shown on all your invoices along with a breakdown of the net amount (without VAT), VAT and gross amount (including VAT). You might have to reissue any invoices issued in the period between registration and receiving your VAT number.


Standard VAT is calculated by adding 20% to your sale price e.g if the sale price before VAT is £100 then the VAT will be £20 and the price with VAT will be £120.


VAT assumes that you can increase your prices by 20%, but what if you can’t do that?


What happens if you charge a fixed price that can’t be increased? In this case the VAT element will be 1a sixth of the sales price e.g. if you sell at £100 including VAT then the VAT is £16.67. What was a sale for £100 before VAT registration, suddenly becomes a sale of £83.33 afterwards.


For a standard VAT return you add up all the VAT from your sales in that quarter (output VAT), add up all your VAT from your purchases and expenses in that quarter (input VAT) and then deduct the purchases VAT from the sales VAT.


The VAT due to HMRC is the difference between the sales VAT (output VAT) and the purchases VAT (input VAT).


If your purchase VAT (input VAT) is more than your sales VAT (output VAT) then you will be due a refund.

Other Resources

Who Needs To Register For VAT?

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Do Foreign Companies Need To Register For VAT?

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