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VAT Overview
In the UK, VAT, or value-added tax, is charged on the purchase of goods and services. In addition to being an "indirect tax" because it is collected by businesses on behalf of the government, it is a form of "consumption tax" because it is imposed on goods that consumers purchase.
What is UK VAT Calculator
The UK VAT Calculator is a tool used to simplify the calculation of this tax, which can be complex due to different rates, rules, exemptions, and implications on pricing, financial reporting, and compliance with tax laws for businesses and consumers. If you're interested in Ireland Vat calculation, check out our Ireland VAT Calculator.
VAT Inclusive and VAT Exclusive
VAT exclusive is the price or figure that does not include VAT, while VAT inclusive is the opposite. Therefore, when referring to a price that already includes tax, the phrase VAT Inclusive is used, and when referring to a price to which tax still needs to be applied to determine the ultimate cost, the term VAT EXCLUSIVE is used.
Working Out VAT
VAT can be workout in two ways by adding VAT or removing VAT
Adding VAT
Adding VAT Formula
Gross = Amount/100 *(100 + VAT Rate)
Step 1:
Decide which rate you want to use, UK standard VAT rate is 20%, and reduced rate is 5%.
Step 2:
Divide the Amount by 100 and then multiply by the (100 + VAT rate); the result will give you a gross amount, including the VAT.
Step 3:
Calculate VAT amount from gross as:
Total VAT = Gross - Price
Example of VAT Addition
For example, you sell any goods on £700
Amount = £700
VAT Rate = 20%
Gross Amount = Amount/100* (100 + VAT rate)
Gross Amount = 700/100*(100 + 20)
Gross Amount = £840
Now,
Total VAT = Gross Amount - Amount
Total VAT = £840- £700
Total VAT = £140
Deducting VAT
Removing VAT Formula
Net = ( Amount/(100 + VAT Rate)) * 100
Step 1:
Using UK standard VAT Rate, i.e., 20%
Step 2:
Divide the Amount by the (100 + VAT rate) and then multiply by 100; the result will give you a net amount that doesn’t include any VAT.
Step 3:
Calculate Total VAT from Net Amount as:
Total VAT = Amount - Net
Example of VAT Subtraction
For example, If you bought a camera for Gross price £700, then calculate net from gross vat as follows:
Amount = £700
VAT Rate = 20%
Net Amount = Amount(100 + VAT Rate)* 100
Net Amount = 700(100 + 20)* 100
Net Amount = £583.33
Now,
Total VAT = Amount- Net Amount
Total VAT = £700 - £583.33
Total VAT = £116.67
UK VAT rates: Historical overview
In 1973, the Purchase Tax was replaced with the VAT. Unlike the VAT, which was imposed at the time of sale, this earlier tax was imposed at the time of production and distribution of goods and services. Varied sorts of items were subject to different rates of the purchase tax.
Depending on their goals and the status of the economy, governments have raised or lowered the standard rate of VAT over time. Historical overview of VAT in the UK is given in the following table.
| Year | Standard rate of VAT |
|---|---|
| 1973-74 | 10% |
| 1974-79 | 8% |
| 1979-91 | 15% |
| 1991-2008 | 17.5% |
| 2008-09 | 15% |
| 2009-11 | 17.5% |
| 2011-present | 20% |
How much is VAT in UK?
The current standard rate of VAT in the UK is 20%, and this is the amount that is applied to the majority of purchases. But as a business, you also need to be aware of different VAT rates. Reduced rate VAT, which is imposed at 5%, is levied on sanitary items, energy-saving devices, and kid car seats.
What is a VAT number?
When a firm registers for VAT, HMRC issues it a special ID called a VAT number. In the UK, VAT numbers are always preceded with "GB" and are nine digits long; however, If you're working with a vendor from another EU nation, their VAT number will be formatted accordingly.
Significance of VAT number
If you attempt to reclaim VAT without receiving a working VAT number from your provider, HMRC may invalidate your claim. If this transpires, you can be stuck paying the bill or having to deal with a lot of office duties to fix the problem.
How to check VAT number in UK
There are two ways to determine whether a VAT number is active:
- HMRC VAT helpline
If you have any questions concerning a registration number, you should contact HMRC's VAT helpline because they maintain a comprehensive database of all VAT-registered businesses. For VAT general enquiries visit GOV.UK, and HMRC helpline number is: 0300 200 3700
- VIES website
What You Can Do With Our UK VAT Calculator
- Pricing and Quotes: Determine VAT-inclusive/exclusive amounts for pricing.
- Personal Financial Planning: Determine VAT component or pre-VAT prices.
- Budgeting and Planning: Estimate VAT expenses for financial planning.
- Cross-border Transactions: Calculate VAT for international trade.
Benefits of VAT registration
- If you are registered, you will be eligible to recoup any VAT that your company pays on supplies and commodities it purchases.
- Since the VAT threshold is so high, signing up can give the impression that you are an established company. In fact, some companies voluntarily register in order to project an impression of accomplishment.
- VAT can be claimed on the majority of goods and services obtained from other firms.
- The requirement to register for VAT will compel you to keep more precise records, which will ultimately help your firm run more smoothly.
VAT exempt goods and services
- Antiques, artwork, or items of a similar nature when sold to public institutions.
- Interment or cremation
- Commercial buildings & land
- Gambling (betting, gaming, bingo, lottery)
- Monetary services
- Medical treatment & care
- Physical activity and sports
- Membership subscriptions and TV license
- Health Services such as doctors, dentists, opticians, pharmacists etc.
- Education, vocational training
Conclusion
When the UK entered the European Economic Community in 1973, the Value Added Tax (VAT) was implemented in the country. VAT was first intended to take the place of purchase tax. The United Kingdom's VAT governing system saw some significant adjustments during the ensuing decades. This article's goal was to explain to you about VAT and all of the frequently asked questions related to it.
FAQs
It denotes that VAT is not included in the pricing. Since this is 20% in the UK, adding VAT results in a 20% increase.
What you do at 20% is as follows: To calculate the net or gross sum, multiply the VAT by 5 or 6 (by 5 to get the net amount, or by 6 to get the gross amount).
Most food and drink items sold by businesses (like supermarkets) are VAT-free. However, the majority of the time, food provided by caterers, restaurants, cafés, bakeries, bars, and takeaway enterprises is subject to VAT.
HMRC could severely penalize you and harm your image if you don't register for VAT or don't comprehend how the system works.
If a person is engaged in the economic activity of making supplies of taxable products and services, regardless of the type of business they are in, they must register for VAT.