SMALL BUSINESS RESOURCES VAT Calculator

Updated on July 19, 2022

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*Standard VAT rate only

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VAT calculations and VAT computations are a must for UK-based businesses operating above the VAT (value-added tax) threshold of £85,000 per year.

Please refer to our linked articles if you need a refresher on VAT or VAT for small enterprises.

How to calculate VAT from gross?

Occasionally, you’ll need to figure out how to calculate VAT from the gross price or VAT-inclusive amount in your business transactions.

A common term for this is “backwards” VAT calcuation.

You can use the following formula to get the percentage of a gross price that is VAT:

The gross sale price is divided by 1 + the VAT rate to arrive at the total cost.
If the usual VAT rate is 20%, then the gross sales price should be divided by 1.2.

The gross sales price is multiplied by 1,05 if the applicable VAT rate is 5%.

Let’s take a look at a real-world example. Let’s say you spend £120 on a desk for your company.

Vat on this is set at 20%.

So, the VAT on a purchase of $120 is $10.

How do you add VAT to a price?

You don’t have to do much to add VAT to your prices if your business is registered for VAT.

If you’re selling a product or service, simply use the applicable VAT percentage rate.

The regular rate is 20%, the reduced rate is 5%, and the zero rated rate is 0%, depending on the HMRC classification of the sale.

Calculating the VAT rate is as easy as this:

The net sales price multiplied by 1 plus the VAT rate
A book sold for £20 will be subject to a 20% VAT rate, resulting in a total VAT-inclusive selling price of $24.

How to work out how much VAT to pay?

HMRC requires accurate bookkeeping and documentation in order to process VAT payments.

While calculating VAT is simple, keeping track of everything is a lot more difficult because the arithmetic is so straightforward.

Use these HMRC recommendations to figure out how much VAT you owe:

VAT received less VAT paid equals VAT owed or received.
This sum is due to HMRC if your test results are positive.

You owe HMRC money if you receive a negative number.

Suppose your company sold $5,000 worth of goods and charged VAT on that sum. A further £1,000 in VAT will be due to HMRC if you spend £4,000 on business supplies or materials in the same time period.

VAT accounting and recording

Your ability to keep accurate records is critical to calculating the amount of VAT you owe to the HMRC in your VAT return.

The task will be simple if you keep excellent records and store all receipts and invoices in a safe place.

If, on the other hand, your bookkeeping is shoddy, expect a rocky ride.

Cloud accounting software (which automates most of this labor) combined with the wise counsel of a reputable bookkeeper or accountant is the best way to ensure your compliance in this area. You can’t go wrong with this winning mix.

If you’re still unclear about how to calculate VAT, check out the HMRC website for further details, or use the VAT calculator below for quick calculations.

As a reminder, our other calculators are available to businesses in Australia and New Zealand.

The GST Calculator in Australia
GST Calculator for New Zealand