£UK VAT Calculator

A Plain-English Guide

How UK Value Added Tax actually works.

VAT is the tax everybody pays and nobody quite understands. The good news: the principle is elegant. The bad news: HMRC has appended seven hundred pages of footnotes to it. Below is the part you actually need.

The principle, in one sentence

VAT is a tax on the value a business adds to a product or service — collected in instalments down the supply chain, and ultimately paid by the consumer.

The three rates you must know

  • Standard rate — 20%. Applies to most goods and services.
  • Reduced rate — 5%. Domestic fuel, children's car seats, energy-saving materials.
  • Zero rate — 0%. Most food, books, newspapers, children's clothes, public transport.

When must you register?

You must register for VAT with HMRC when your taxable turnover crosses £90,000 in any rolling twelve-month period. Below that, you may register voluntarily — sometimes a wise move if your customers are themselves VAT-registered businesses.

Input VAT versus Output VAT

Output VAT is what you charge your customers. Input VAT is what your suppliers charge you. Each quarter, you pay HMRC the difference. If your input exceeds your output — common in start-up months — HMRC pays you.

A worked example

You buy timber for £600 + £120 VAT. You build a table and sell it for £1,000 + £200 VAT. You collected £200 in output VAT. You paid £120 in input VAT. You owe HMRC £80 — the tax on the £400 of value you added.

Ready to crunch the numbers? Open the VAT calculator →