UK VAT Guide 2026
What is VAT in the UK?
Value Added Tax (VAT) is a consumption tax levied on goods and services at each stage of the supply chain. Businesses registered for VAT collect it on behalf of HM Revenue & Customs (HMRC). The UK standard VAT rate is 20%, making it one of the most common calculations for UK businesses and consumers.
VAT was introduced in the UK on 1 April 1973 when Britain joined the European Economic Community. Despite Brexit, the UK continues to operate its own VAT system independently, still governed by HMRC and the Value Added Tax Act 1994.
VAT Formula
How to Calculate VAT
There are two essential VAT formulas every business owner should know:
Gross = Net × (1 + VAT Rate / 100)
VAT Amount = Net × (VAT Rate / 100)
VAT = £100 × 0.20 = £20.00
Gross = £100 + £20 = £120.00
Net = Gross ÷ (1 + VAT Rate / 100)
VAT Amount = Gross − Net
Net = £120 ÷ 1.20 = £100.00
VAT = £120 − £100 = £20.00
UK VAT Rates 2026
VAT Rates Explained
20%
Standard Rate
Applies to most goods and services including electronics, clothing (adult), restaurants, and professional services.
5%
Reduced Rate
Home energy (gas/electric), children's car seats, certain renovation works, and mobility aids for elderly people.
0%
Zero Rate
Food (most), books, newspapers, children's clothing and shoes, public transport, and certain medical equipment.
N/A
VAT Exempt
Financial services, insurance, education, healthcare by registered professionals, and residential property rentals.
VAT vs Sales Tax
Difference Between VAT and Sales Tax
| Feature | UK VAT | US Sales Tax |
|---|
| Collection point | Every stage of production | Final point of sale only |
| Who collects | All VAT-registered businesses | Retailers only |
| Shown on invoice | Always itemised | Added at checkout |
| Rate | National: 0%, 5%, 20% | Varies by state: 0–11.5% |
| Registration threshold | £90,000 turnover (2026) | Economic nexus thresholds |
| Reclaim by businesses | Yes (input VAT) | Typically no |
Frequently Asked Questions
VAT Calculator FAQs
What is the UK VAT registration threshold in 2026?
As of 2026, businesses must register for VAT when their taxable turnover exceeds £90,000 in any rolling 12-month period. Once registered, you must charge VAT on applicable sales and can reclaim VAT on business purchases.
How do I calculate reverse VAT (remove VAT from a gross price)?
To remove 20% VAT from a gross price, divide by 1.20. For 5% VAT, divide by 1.05. The formula is: Net = Gross ÷ (1 + VAT Rate/100). Our Reverse VAT Calculator tab does this automatically. Simply enter the gross amount and select the rate.
What US states have no sales tax?
Five US states have no state sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. However, Alaska allows local municipalities to impose sales taxes. Always verify local rates as they can differ significantly from state rates.
Can I reclaim VAT on business purchases?
Yes — if your business is VAT-registered, you can reclaim the VAT you pay on business-related purchases as input tax. This is offset against the VAT you collect from customers (output tax). You pay HMRC the difference. If your input VAT exceeds output VAT, HMRC will refund the difference.
Is VAT the same as GST?
VAT and GST (Goods and Services Tax) are similar but differ by country. The UK uses VAT; Australia, Canada, and India use GST. Both are multi-stage consumption taxes collected at each point in the supply chain, and both allow businesses to reclaim tax on inputs. The mechanics are essentially the same, just named differently in different jurisdictions.
How accurate is this VAT calculator?
Our calculator uses HMRC-standard VAT formulas and rounds to 2 decimal places per standard accounting practice. US state rates are based on 2026 combined (state + average local) figures. For official tax filings, always verify with HMRC or a qualified VAT accountant, as rates and rules can change.
