Glossary · UK
What is VAT (Value Added Tax)?
A consumption tax added to most goods and services, currently 20% standard rate in the UK.
Full Definition
VAT (Value Added Tax) is a tax on consumption charged at each stage of the supply chain but ultimately borne by the end consumer. The UK standard rate is 20%; a reduced rate of 5% applies to items such as domestic energy and childrens car seats, and a 0% rate to most food, books and childrens clothing. Businesses with taxable turnover above the registration threshold (GBP 90,000) must register, charge VAT on sales (output VAT) and can reclaim VAT on purchases (input VAT), paying HMRC the difference. To add VAT, multiply the net price by the rate; to find the VAT inside a gross price, divide by 1 plus the rate.
How VAT (Value Added Tax) is calculated
Add VAT: VAT = Net x rate; Gross = Net + VAT
Remove VAT: Net = Gross / (1 + rate); VAT = Gross - Net- rate
- 0.20 standard, 0.05 reduced, 0 zero-rated (2026/27).
- Net
- Price excluding VAT.
- Gross
- Price including VAT.
Worked example: On a GBP 100 net price at 20%: VAT = 100 x 0.20 = GBP 20, gross = GBP 120. From a GBP 120 gross price: net = 120 / 1.20 = GBP 100, so the VAT is GBP 20 (one sixth of the gross).