Adding VAT to a price is one of the most common calculations a UK business makes — on every quote, invoice and till receipt. Get it wrong and you either undercharge (and pay the VAT out of your own pocket) or overcharge (and face awkward questions from customers). This guide shows the exact formulas for adding VAT at the 20%, 5% and 0% UK rates, with worked £ examples, HMRC rounding rules and the mistakes to avoid, all for the 2026/27 tax year.
For 2026/27, the UK VAT rates are: standard rate 20%, reduced rate 5%, and zero rate 0%. The VAT registration threshold is £90,000 of taxable turnover in any rolling 12-month period — only VAT-registered businesses may add VAT to their prices.
The Formula for Adding VAT
The formula is the same whichever rate applies:
Gross price (including VAT) = Net price (excluding VAT) × (1 + VAT rate ÷ 100)
In practice, that means multiplying the net price by a fixed multiplier:
| VAT rate | Multiplier | Formula |
|---|---|---|
| Standard rate 20% | × 1.20 | Gross = Net × 1.20 |
| Reduced rate 5% | × 1.05 | Gross = Net × 1.05 |
| Zero rate 0% | × 1.00 | Gross = Net (no VAT added) |
If you only need the VAT amount itself (for example, to show "VAT: £X" as a separate line on an invoice), use:
VAT amount = Net price × (VAT rate ÷ 100)
So at 20%, the VAT amount is the net price × 0.20. At 5%, it is the net price × 0.05.
Worked Examples: Adding 20% VAT
Most goods and services in the UK carry the standard 20% rate, so this is the calculation you will use most.
Example 1 — a £100 service. A consultant quotes £100 excluding VAT. Gross = £100 × 1.20 = £120. The VAT element is £100 × 0.20 = £20.
Example 2 — a £45.50 product. An online shop sells a lamp at £45.50 net. Gross = £45.50 × 1.20 = £54.60. The VAT element is £45.50 × 0.20 = £9.10.
Example 3 — a £999 laptop. Gross = £999 × 1.20 = £1,198.80. The VAT element is £999 × 0.20 = £199.80.
Example 4 — a small £8.33 item. Gross = £8.33 × 1.20 = £9.996, which rounds to £10.00 (see HMRC rounding rules below). The VAT element is £8.33 × 0.20 = £1.666, rounded to £1.67.
Notice the pattern: at 20%, the VAT is always exactly one-fifth of the net price, and the gross price is the net price plus that fifth.
Worked Examples: Adding 5% and 0% VAT
The 5% reduced rate applies to a short list of supplies, including domestic fuel and power, children's car seats, mobility aids for older people, and certain energy-saving installations.
Example — a £65 children's car seat at 5%. Gross = £65 × 1.05 = £68.25. The VAT element is £65 × 0.05 = £3.25.
Example — a £200 energy-saving boiler installation at 5%. Gross = £200 × 1.05 = £210. The VAT element is £10.
The 0% zero rate applies to most food, children's clothes, books and newspapers. Zero-rated does not mean "no calculation needed" — it matters because zero-rated turnover still counts towards the £90,000 registration threshold, unlike exempt turnover. Mathematically, though: Gross = Net × 1.00, so a £40 children's jacket stays £40.
When Must You Add VAT to Your Prices?
You may only add VAT to your prices if your business is VAT-registered. Charging VAT without being registered is not allowed, and HMRC can require you to hand over any VAT you wrongly charged.
You must register for VAT when your taxable turnover goes over £90,000 in any rolling 12-month period, or when you expect it to exceed £90,000 in the next 30 days alone. Once registered, you add VAT to the taxable supplies you make and account for it on your VAT return. Our guide to when to register for VAT in the UK explains both tests in detail.
One more rule catches out new retailers: prices shown to consumers must include VAT. Under the Price Marking Order 2004, any price displayed to a private customer has to be the VAT-inclusive price, so a shop shelf label or website price must already have the VAT added — you cannot advertise £100 and then add VAT at the till.
What About Delivery and Extra Charges?
Delivery, postage and packaging charges normally take the same VAT rate as the goods they relate to. If you sell a standard-rated £50 item and charge £4.95 delivery, the delivery also carries 20% VAT: £4.95 × 1.20 = £5.94. If the goods are zero-rated (say, children's clothes), the delivery is generally zero-rated too. Where an order mixes rates, apportion the delivery charge across them.
HMRC Rounding Rules
Real-world prices rarely divide neatly, so HMRC's VAT Notice 700 sets out how to round:
- The total VAT on an invoice may be rounded down to the nearest whole penny — you can ignore any fraction of a penny.
- Per-line VAT may be worked out to the nearest 0.1p, or rounded to the nearest 0.5p or 1p — whichever method you choose, you must apply it consistently.
- In practice, most businesses round each line's VAT to the nearest penny, then total the invoice.
Rounding per line versus rounding on the invoice total can produce a 1p difference on large invoices. Either approach is acceptable to HMRC as long as you are consistent.
Common Mistakes When Adding VAT
1. Adding VAT to a price that already includes it. If a supplier quotes £120 "including VAT", the VAT is already in the price — adding another 20% gives £144 and is simply wrong. Always check whether a quoted price is net or gross. If you need to go the other way, see our guide on how to take VAT off a price.
2. Using the wrong rate. Charging 20% on a 5%-rated supply (or vice versa) creates under- or over-declared VAT. Check the rate for your specific product — HMRC's VAT rates guidance is the authority.
3. Charging VAT when you are not registered. Only VAT-registered businesses can charge VAT. If you are below the £90,000 threshold and have not voluntarily registered, your prices must be VAT-free.
4. Forgetting VAT on deposits and stage payments. VAT is generally due on deposits when they are received, not when the final invoice is issued. A £500 deposit on standard-rated work carries £100 VAT (total £600) at the point of payment.
5. Flat Rate Scheme confusion. Businesses on the Flat Rate Scheme still charge customers the full 20% VAT — the flat-rate percentage only changes what the business pays to HMRC, never what the customer pays.
Quick Reference: Adding VAT at a Glance
- 20% VAT: multiply the net price by 1.2
- 5% VAT: multiply the net price by 1.05
- 0% VAT: the price is unchanged
- VAT amount only: multiply the net price by 0.2 (for 20%) or 0.05 (for 5%)
- Round the invoice VAT total down to the nearest penny
- Consumer-facing prices must already include VAT
FAQs
Can I add VAT to my prices if my business is not VAT-registered?
No. Only VAT-registered businesses may charge VAT. If your taxable turnover is below the £90,000 threshold and you have not voluntarily registered, you must not add VAT to your prices — and you cannot reclaim VAT on your own purchases either.
What is the formula for adding 20% VAT to a price?
Multiply the net (excluding-VAT) price by 1.20. For example, £250 × 1.20 = £300 including VAT. The VAT element is £250 × 0.20 = £50.
Do I add VAT on top of delivery charges?
Yes, normally at the same rate as the goods. Delivery on standard-rated goods carries 20% VAT; delivery on zero-rated goods is generally zero-rated. So £4.95 delivery on a standard-rated item becomes £5.94 including VAT.
How do I round VAT on an invoice?
Round the total VAT on the invoice down to the nearest whole penny. Per-line VAT can be calculated to 0.1p or rounded to the nearest 0.5p or 1p, applied consistently across the invoice.
What happens if the VAT rate changes?
You apply the rate in force at the tax point (usually the date of supply or the date payment is received, whichever is earlier). Special anti-avoidance rules can apply around Budget-day rate changes, so check HMRC guidance if a change is announced.
Is a price of £100 "plus VAT" the same as £120 including VAT?
Yes, at the standard rate: £100 plus 20% VAT = £120 including VAT. But never assume — always confirm with the supplier whether a quote is net or gross before you calculate.
Internal links: /when-to-register-for-vat-uk/, /how-to-take-vat-off-a-price-uk/, /how-to-calculate-flat-rate-vat/, /vat-return-boxes/ Author: VAT Calculator Team
Educational information and estimates. These tools do not submit VAT returns or determine the treatment of a specific transaction.