How to add VAT to a price, and when to register

VAT affects how you price, quote and invoice. This guide covers the sums and the registration rules, using GOV.UK and HMRC guidance.

The UK VAT rates

Standard rate. 20%, for most goods and services
Reduced rate. 5%, for some goods and services
Zero rate. 0%, for some goods and services

Some items are exempt from VAT altogether. GOV.UK lists which rate applies to which goods and services.

How to add VAT to a price

At the standard rate, multiply the price before VAT by 1.2. A £100 job becomes £120 including VAT, of which £20 is VAT. At the reduced rate, multiply by 1.05.

How to work out the VAT in a price that already includes it

At 20%, the VAT is one sixth of the VAT inclusive price. HMRC's VAT guide gives the example of £2.40 including VAT, which contains 40p of VAT. To find the price before VAT, divide by 1.2.

Our VAT calculator adds or removes VAT at any rate.

When you must register for VAT

You must register if your VAT taxable turnover for the last 12 months goes over £90,000, or if you expect it to go over £90,000 in the next 30 days alone.

If you went over the threshold in the last 12 months, you must register within 30 days of the end of the month you went over. GOV.UK's example, if you went over on 15 July, you must register by 30 August, and your registration takes effect from 1 September.

GOV.UK says that if you register late, you must pay VAT on any sales made since the date you should have registered, and you might need to pay a penalty.

Registering voluntarily

You can register even if your turnover is below the threshold. That lets you reclaim VAT on business costs, but you must then charge VAT on your sales and send VAT returns, so check the effect on your prices first.

Software for VAT returns

FreeAgent and Xero are both compatible with Making Tax Digital for VAT. Xero starts at Ignite £18/month (excl. VAT), and FreeAgent starts at £33/month (limited company). Read our Making Tax Digital guide or the FreeAgent vs Xero comparison to choose.

Questions

How do I add 20% VAT to a price?

Multiply the price before VAT by 1.2. For example, £100 becomes £120 including VAT.

How do I remove VAT from a price?

Divide the VAT inclusive price by 1.2 to get the price before VAT. At 20%, the VAT is one sixth of the VAT inclusive price.

What is the VAT registration threshold?

You must register if your VAT taxable turnover for the last 12 months goes over £90,000, or you expect it to go over £90,000 in the next 30 days alone.

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Sources

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