VAT

⚠ Taking VAT off a price is not the same as subtracting the rate. Knock 20% off a VAT-inclusive £120 and you get £96 — but the right answer is £100.

Why the two are different

The VAT is 20% of the price before VAT, not 20% of the price including it. On a £120 total, £20 of it is VAT — which is a sixth of the total, not a fifth. Subtracting a fifth understates the net figure by 4% every time, and it is the most common arithmetic mistake anyone makes with VAT.

The way round it is to divide rather than subtract: the net figure is the gross divided by 1.2 at the standard rate. This page then takes the VAT as whatever is left over, so the two always add back to exactly the figure you typed in — working both out separately and rounding each can leave them a penny apart.

Registration is on a rolling twelve months

Not your accounting year. The test is whether taxable turnover for any twelve consecutive months has gone over the threshold, checked at the end of every month — so a good quarter can trigger it long before your year end. There is a second test too: if you expect to go over the threshold in the next 30 days alone, you must register immediately.

The deregistration threshold is lower than the registration one, on purpose. It stops a business hovering at the line from having to register and deregister every few months.

Zero-rated is not the same as exempt

Zero-rated sales are taxable at 0%, so they count toward the registration threshold and you can reclaim the VAT on what you buy to make them. Exempt sales do neither. A business selling only exempt supplies cannot register at all, and a business selling only zero-rated ones often should — it reclaims VAT and charges none.

What this does not cover

Which rate applies to what, which is a large and unintuitive body of law — a chocolate biscuit and a chocolate-covered cake are taxed differently. Exempt supplies and partial exemption. The Flat Rate Scheme, which has its own page. Cash and annual accounting. The margin scheme for second-hand goods. Imports, exports and the Northern Ireland protocol. And the reverse charge, which shifts who accounts for the VAT rather than changing how much it is.

Where these figures come from

Every rate above is read from a dated rate file rather than written into the page, and each one is checked against the gov.uk page it came from. How these numbers are kept right sets out the whole process.

Flat Rate Scheme calculator