UK VAT Calculator (2025/26)

UK VAT rates explained

Value Added Tax (VAT) is charged on most goods and services sold by VAT-registered businesses in the UK. There are three rates: the standard rate (20%) which applies to the majority of goods and services, the reduced rate (5%) which applies to specific items including domestic fuel and power, children's car seats, and some energy-saving materials, and the zero rate (0%) which applies to most food, books, newspapers, children's clothing, and public transport.

Zero-rated goods are technically still within the VAT system — the business charges VAT at 0% but can still reclaim VAT on its own purchases. This is different from VAT-exempt goods (such as financial services, education, and health services), where no VAT is charged but the business also cannot reclaim input VAT.

Adding and removing VAT

To add VAT to a net (ex-VAT) price: multiply by 1.20 for standard rate, 1.05 for reduced rate. To remove VAT from a gross (inc-VAT) price: divide by 1.20 for standard rate, or equivalently multiply by 5/6. A common mistake is to calculate 20% of the gross price and subtract it — this gives the wrong answer because 20% of the gross is not the same as the VAT component. The VAT component of a £120 gross price is £20 (120 ÷ 6), not £24 (120 × 0.20). This calculator handles both directions automatically.

VAT registration threshold

You must register for VAT if your taxable turnover exceeds £90,000 in any rolling 12-month period (the threshold from 1 April 2024). You can also register voluntarily below this threshold, which can be advantageous if your customers are VAT-registered businesses (they can reclaim the VAT you charge, so your prices remain competitive) or if you have significant input VAT to reclaim on purchases and expenses.

Once registered, you must charge VAT on your taxable sales, submit VAT returns (usually quarterly via Making Tax Digital), and pay the difference between the VAT you collected and the VAT you paid on business purchases (input VAT). If your input VAT exceeds your output VAT — common for exporters and businesses with large capital expenditure — HMRC refunds the difference.

Flat Rate Scheme

Small businesses with taxable turnover under £150,000 (excluding VAT) can use HMRC's Flat Rate Scheme. Instead of accounting for VAT on every individual transaction, you pay a fixed percentage of your gross turnover — the percentage depends on your trade sector (for example, 14.5% for computer and IT consultancy, 12% for management consultancy). The advantage is simplicity; the trade-off is that you cannot reclaim VAT on most purchases. For businesses with low input VAT (predominantly labour-based services), the Flat Rate Scheme is often beneficial.

Common VAT questions for contractors

UK contractors frequently encounter VAT questions when setting up their limited company. If your turnover will exceed £90,000, registration is mandatory. If you are working for VAT-registered clients (which most businesses are), charging VAT does not make you more expensive to them — they simply reclaim it. The real cost consideration is the administrative burden of quarterly VAT returns, which your accountant typically handles as part of their standard service.

For contractors operating through an umbrella company, VAT is handled by the umbrella — you do not need to register or file returns. If you move from umbrella to limited company, VAT registration is one of the setup tasks to address early. The Contractor Day Rate Calculator and IR35 Calculator help model the broader financial picture.