SMALL BUSINESS RESOURCES

VAT Calculator

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*Standard VAT rate only

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If you’re a UK-based business and are operating above the VAT (value-added tax) threshold of £85,000, you’ll need to know how to calculate VAT and how to work out VAT. 

If you need a reminder about what is VAT or VAT for small businesses, please click through to our related articles.

How to calculate VAT from gross?

Sometimes, in your business dealings, you’ll need to figure out how to calculate VAT from the gross price or VAT inclusive amount. This is otherwise known as calculating VAT ‘backwards’. 

If you have a gross price and need to figure out which portion is VAT, you can use the following formula:

  • Divide gross sale price by 1 + VAT rate

For example, if the applicable standard VAT rate is 20%, you’ll divide the gross sales price by 1.2. 

If the applicable VAT rate is 5%, you’ll divide the gross sales price by 1.05.

Let’s look at a real-life situation. Say you buy a desk for your business at a total price of £120. This will attract 20% VAT. 

So, £120 ÷ 1.2 = £10 VAT.

How do you add VAT to a price?

If your business is registered for VAT, adding VAT to your sales price takes minimal effort.

Simply apply the relevant VAT percentage rate that corresponds to the item or service you’re selling. 

This will be either 20% (standard rate), 5% (reduced rate) or 0% (zero rated) depending on the classification of the sale according to the HMRC. 

The simple VAT formula is:

  • Multiply net sales price by 1 + VAT rate

So, if you sell a book for £20, this will attract a 20% VAT rate, resulting in £4 VAT, meaning the total VAT inclusive sales price will be £24.

How to work out how much VAT to pay?

When approaching the topic of paying VAT to the HMRC, the primary consideration lies in your recording and accounting activities. 

The maths for working out VAT is quite straightforward, as such, the devil is in the administrative details. 

The VAT formula used to work with the HMRC is as follows:

  • VAT collected – VAT paid = VAT payable or receivable

If you end up with a positive number, you owe this amount to the HMRC. If you receive a negative number, this is how much the HMRC owes you.

Let’s say you charged a total of £5,000 VAT through your business’s sales. If you also paid £4,000 in VAT by purchasing business supplies or materials in the same period, you’ll owe the HMRC £1,000 in VAT.

VAT accounting and recording

As mentioned, the crucial aspect of how to calculate VAT payable to the HMRC through your VAT return hinges upon your bookkeeping ability. 

If you keep thorough and meticulous records and document all your receipts and invoices, this will be a straightforward task. If, however, your bookkeeping is lax, prepare for a bumpy road ahead.

To ensure your compliance in this area, the best method is to combine cloud accounting software (which automates much of this workload) with the sage advice of a trusted bookkeeper or accountant. This is a winning combination which simply can’t be beaten.

If you’re still unsure how to calculate VAT, visit the HMRC for expanded information, or if you have a simple calculation to do, make use of the following VAT calculator.