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Enter your amount, select the VAT rate, and get instant results with FreshBooks’ handy VAT calculator. Simplify your tax calculations and ensure accuracy for your business.
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What is VAT?
Value Added Tax (VAT) is a consumption tax applied to most goods and services in the UK. It’s a crucial part of the UK’s taxation system, affecting businesses by requiring them to collect tax on sales and account for it to HM Revenue and Customs (HMRC).
The standard rate of VAT applies to most goods and services in the UK, and it is important for businesses to understand this rate for accurate pricing and tax calculations. Learn more about How Does VAT Work: An Overview.
How does the FreshBooks VAT calculator work?
- Enter the amount: Start by inputting the amount you want to calculate into the FreshBooks VAT calculator.
- Select the VAT rate: Choose the appropriate VAT rate from the provided options.
- Choose the calculation type: Indicate whether you want to add VAT to the amount or remove it. When adding VAT, the calculator will incorporate the VAT into the net amount, providing you with the total price including VAT.
- View the results: The calculator will instantly display the VAT amount and the total.
How to calculate VAT
Without the FreshBooks VAT calculator, you need to work out your VAT manually – like this:
Adding VAT
Decide if you’re using the standard 20% rate, or reduced 5% rate of VAT
Standard rate – multiply the price by 1.2 = net + VAT price. £50 X 1.2 = £60
Reduced rate – multiply the price by 1.05 = net + VAT price. £50 X 1.05 = £52.50
The result of these calculations is your gross price, including VAT. At the standard rate, this means a £50.00 item becomes £60, with added VAT. And £52.50, if you apply the reduced VAT rate.
Deducting VAT
Define which VAT rate is being used – 20% or 5%, standard or reduced rate
To work out a price excluding VAT, you divide your price by either 1.2 or 1.05, depending on the applicable VAT rate
Standard rate: Price / 1.2 = net price £54 / 1.2 = £45
Reduced rate: Price / 1.05 = net price £54 / 1.05 = £51.43
FreshBooks Online VAT Calculator Works Out Prices With or Without VAT for You
Of all the VAT calculators available, FreshBooks’ is the most user-friendly design. Simple, time-saving tech at its best. And wait till you see how much more time FreshBooks will save you on other admin and accounting tasks.
What are the VAT rates in the UK?
The UK has several VAT rates:
- Standard rate: 20% – Most goods and services, like electronics and home essentials, fall under this category.
- Reduced rate: 5% – Applies to specific items such as children’s car seats and energy-saving products. The reduced VAT rate is significant for items like health products and certain residential property renovations.
- Zero rate: 0% – Covers essential goods and services like most food items and children’s clothing.
The rate of VAT is applied differently depending on the type of goods and services, with the standard rate, reduced rate, and zero rate each serving specific categories.
Who needs to pay VAT?
Businesses must register for VAT if their turnover exceeds the current VAT threshold, which is £85,000. Once registered, businesses are obligated to charge VAT on their sales, submit VAT returns to HMRC, and pay any VAT owed. Additionally, businesses may also need to consider the implications of dividend tax on their income.
Benefits of using a VAT calculator
Using an online VAT calculator offers numerous benefits for businesses.
- Accuracy: Ensures precise VAT calculations, reducing errors when calculating VAT.
- Time-saving: Quickly calculates VAT, saving valuable time for businesses.
- Ease of use: Simple and intuitive interface for effortless calculations.
- Compliance: Helps businesses stay compliant with UK VAT rates.
- Quick calculations: Instantly adds or removes VAT for efficient financial management.
Frequently Asked Questions
To calculate the ex VAT price, you need to remove the VAT amount from the total price, effectively finding the price excluding VAT. You can do this by dividing the total price by 1 plus the VAT rate. For example, if the VAT rate is 20%, you would divide the total price by 1.20.
To find the original price after VAT, you must know whether the given price includes or excludes VAT. If it includes VAT, divide by 1 plus the VAT rate. If it excludes VAT, simply use the given price to exclude VAT from the calculation.
VAT-inclusive prices include the VAT amount in the stated price, meaning VAT is already added. VAT-exclusive prices are the cost of the goods or services without VAT, to which VAT is added at the point of sale.
Yes, businesses registered for VAT can typically claim back VAT on eligible business-related purchases. This is done by deducting the VAT paid on purchases (input tax) from the VAT collected on sales (output tax) and reporting the difference to HMRC.
