UK VAT Explained — Add, Remove, Reclaim

20% VAT sounds simple until you try to extract it from a gross figure in your head. Here's the maths and the registration rules.

By · Updated · Methodology

Adding vs removing VAT

Adding 20% VAT to a net figure: multiply by 1.2. Net £100 → gross £120.

Removing VAT from a gross figure: divide by 1.2, not subtract 20%. Gross £120 → net £100 (not £96). The VAT portion of £120 gross is £20, which is 1/6 of the gross.

Use the VAT calculator for any amount in either direction.

When you must register

  • Compulsory: your rolling 12-month UK taxable turnover exceeds £90,000, or you expect it to in the next 30 days.
  • Voluntary: you can register below the threshold — useful if most of your customers are VAT-registered businesses who can reclaim VAT you charge, because you in turn can reclaim VAT on your costs.

Flat Rate Scheme

Small businesses (under £150k turnover) can use the Flat Rate Scheme: pay HMRC a flat percentage of gross takings (varies by sector, typically 9–16.5%) instead of the standard difference between output and input VAT. Simpler, sometimes cheaper. The "limited cost trader" rules bite many service businesses though — check before assuming it helps.

Common mistakes

  • Subtracting 20% from gross: on a £120 gross price, the VAT element is £20 (= gross ÷ 6), not £24. Subtracting 20% leaves £96, which is wrong.
  • Forgetting reverse charge: certain services (notably construction CIS and B2B services from EU/non-UK suppliers) use a reverse-charge mechanism where the buyer accounts for the VAT.
  • Not invoicing VAT-inclusive to consumers: B2C prices in the UK must be displayed VAT-inclusive. B2B can quote ex-VAT, but the invoice must clearly show both.
  • Missing the cliff: turnover is rolling 12-month, not tax-year. A surge in November can trigger registration with little warning.

Related

VAT calculator Tax estimate calculator VAT glossary entry