In this section:
- VAT rates explained: standard, reduced, zero, exempt
- Rates of VAT on different goods and services
- VAT rates, thresholds, fuel scale charges, exchange rates
- Calculating VAT for VAT-inclusive and VAT-exclusive prices
- Trade sectors with special VAT rates, rules or concessions
- Increase in the standard VAT rate
Calculating VAT for VAT-inclusive and VAT-exclusive prices
If you're registered for VAT and you're selling goods and services that are taxable for VAT, you will need to make a VAT calculation. If you advertise prices exclusive of VAT, you'll need to work out how much VAT to add. If you advertise prices inclusive of VAT, you'll need to work out how much VAT to record in your VAT account.
If you're registered for VAT and you want to claim VAT back on your purchases, then you'll find that sometimes goods and services that are VAT taxable are sold inclusive of VAT. The receipt may not show the amount of VAT included in the total. In this case, in order to claim back the VAT on your purchase, you'll need to calculate the VAT from the VAT-inclusive amount.
This guide shows how you can accurately calculate the VAT for a VAT-exclusive price, and the VAT component and the VAT-exclusive price of a VAT-inclusive price.
On this page:
- Calculate standard-rate VAT for a VAT-exclusive price
- Calculate reduced-rate VAT for a VAT-exclusive price
- Why VAT needs to be calculated from a VAT-inclusive price
- Calculate standard-rate VAT in a VAT-inclusive price
- Calculate reduced-rate VAT in a VAT-inclusive price
- VAT rates are subject to change
Calculate standard-rate VAT for a VAT-exclusive price
The following example shows you how to work out the VAT - and the VAT-inclusive price - where the price before VAT is £100 and the standard rate of VAT applies.
| Item | Amount |
|---|---|
| Price excluding VAT | £100 |
| VAT rate 15% | |
| VAT (15% x £100) | £15 |
| Price including VAT | £115 |
For a rate of 15 per cent, you can also work out the VAT-inclusive figure by multiplying by 1.15.
| Item | Amount |
|---|---|
| Price excluding VAT | £100 |
| VAT rate 17.5% | |
| VAT (17.5% x £100) | £17.50 |
| Price including VAT | £117.50 |
For a rate of 17.5 per cent, you can also work out the VAT-inclusive figure by multiplying by 1.175.
Calculate reduced-rate VAT for a VAT-exclusive price
The following example shows you how to work out the VAT and the VAT-inclusive price where the price before VAT is £100 and the reduced rate of VAT applies.
| Item | Amount |
|---|---|
| Price excluding VAT | £100 |
| VAT rate 5% | |
| VAT (5% x £100) | £5 |
| Price including VAT | £105 |
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Why VAT needs to be calculated from a VAT-inclusive price
Sometimes products or services that are VAT taxable are sold at a price including VAT and the amount of VAT is not shown separately on the receipt or otherwise. Examples include vending machines, other machine services such as photocopiers and some retail sales.
Buyers must still accurately calculate the VAT they can reclaim from HM Revenue & Customs (HMRC). Suppliers must still accurately calculate the VAT they must pay to HMRC (unless they are using a retail VAT accounting scheme).
To do this, you need to know the rate of VAT for particular items. Currently there are three VAT rates:
- Standard rate - 15 per cent.
- Reduced rate - 5 per cent.
- Zero rate - 0 per cent.
The standard rate of VAT reduced from 17.5 per cent to 15 per cent from 1 December 2008. The standard rate will increase to 17.5 per cent on 1 January 2010.
There are also items exempt from VAT.
- Find out more about the different VAT rates
- Find more information about the VAT retail accounting schemes
- Get information on choosing the best VAT accounting scheme for your business
- Find out when you can reclaim VAT and when you can't
Calculate standard-rate VAT in a VAT-inclusive price
The standard rate of VAT is 17.5 per cent up to 30 November 2008 and reduces to 15 per cent on 1 December 2008 until 31 December 2009. It changes back to 17.5 per cent on 1 January 2010.
If you know the VAT-inclusive price of a reduced-rate item and you want to find the amount of VAT to pay or reclaim, you can easily calculate the VAT-exclusive price and then subtract that from the VAT-inclusive price to find the VAT.
For example, using a £117.50 VAT-inclusive price with standard rate VAT at 17.5 per cent you find the VAT-exclusive price by dividing the VAT-inclusive price by 1.175:
| Item | Amount |
|---|---|
| Price including VAT | £117.50 |
| Price excluding VAT (£117.50 ÷ 1.175) | £100 |
| VAT (£117.50 - £100) | £17.50 |
Using a £115 VAT-inclusive price with standard rate VAT at 15 per cent you find the VAT-exclusive price by dividing the VAT-inclusive price by 1.15:
| Item | Amount |
|---|---|
| Price including VAT | £115 |
| Price excluding VAT (£115 ÷ 1.15) | £100 |
| VAT (£115 - £100) | £15 |
Using VAT fractions to calculate the VAT in a VAT-inclusive price
You might find it easier to use a 'VAT fraction' to find the amount of VAT that has been included in a VAT-inclusive price. You simply multiply that price by the appropriate VAT fraction to arrive at the VAT.
| Rate of VAT | VAT fraction |
|---|---|
| Standard rate - 17.5% | 7/47 |
| Standard rate - 15% from 1 December 2008 to 31 December 2009 | 3/23 |
Using the VAT fraction of 7/47 you can calculate the VAT included in a price of £117.50 as follows:
| Step | Amount |
|---|---|
| VAT-inclusive price | £117.50 |
| £117.50 x 7 | £882.50 |
| £882.50 ÷ 47 | £17.50 |
Using the VAT fraction of 3/23 you can calculate the VAT included in a price of £115 as follows:
| Step | Amount |
|---|---|
| VAT-inclusive price | £115 |
| £115 x 3 | £345 |
| £345 ÷ 23 | £15 |
Calculate reduced-rate VAT in a VAT-inclusive price
If you know the VAT-inclusive price of a reduced-rate item and you want to find the amount of VAT to pay or reclaim, you can easily calculate the VAT-exclusive price and then subtract that from the VAT-inclusive price to find the VAT.
For example, using a £105 VAT-inclusive price with reduced-rate VAT at 5 per cent you find the VAT-exclusive price by dividing the VAT-inclusive price by 1.05:
| Item | Amount |
|---|---|
| Price including VAT | £105 |
| Price excluding VAT (£105 ÷ 1.05) | £100 |
| VAT (£105 - £100) | £5 |
Using VAT fractions to calculate the VAT in a VAT-inclusive price
You might find it easier to use a 'VAT fraction' to find the amount of VAT that has been included in a VAT-inclusive price. You simply multiply that price by the appropriate VAT fraction to arrive at the VAT.
| Rate of VAT | VAT fraction |
|---|---|
| Reduced rate of VAT - 5% | 1/21 |
Using the VAT fraction of 1/21 you can calculate the VAT included in a price of £105 as follows:
| Step | Amount |
|---|---|
| VAT - inclusive price | £105 |
| £105 ÷ 21 | £5 |
VAT rates are subject to change
The rates of VAT and the corresponding VAT fractions are changed from time to time. The Chancellor of the Exchequer will announce any change in the Budget.
Get information on keeping records, invoicing and accounting for VAT
