Everything you need to know to use the VAT Calculator and apply it to your business

VAT Calculator. A man and a woman standing at a white board making calculations.

Making VAT Calculations simple

Tracking VAT can be tricky without a simple VAT calculator. With varying rules and regulations depending on which industry you work in and what type of business you own. But once you get to grips with the VAT guidelines relevant to you, it all becomes easy enough.

VAT (short for Value Added Tax) is applicable to most goods and services sold by VAT-registered companies. VAT registration is a requirement for companies whose turnover is more than £85,000. You can still choose to become a VAT-registered company if your turnover is less than £85,000 but it’s entirely optional. If you’re registered, the standard practice is to send HMRC a VAT return every three months.

In this article, we’ll take a brief look at VAT rules and regulations, and how they affect your business. We’ll also explain how to calculate VAT, and how Soldo can make managing VAT much easier.

Variation in VAT

The amount of VAT you charge can differ depending on the market. The standard rate of VAT is 20%, and this applies to the majority of goods and services. This is the VAT rate most businesses should be charging, but it’s important to note that VAT can also be reduced, or eliminated completely.

For example, the VAT rate on books is 0% (zero-rated). Many goods in the protective equipment industry are at a reduced rate, such as children’s car seats which have a VAT rate of 5%.

With these varying rates, it’s important to double check how much VAT you should be charging for your goods or services in order to remain tax compliant.

For a full list, take a look at the UK Government’s VAT-rate breakdown page.

Use the VAT Calculator for exemptions

A number of services are completely exempt from VAT, including financial services, sports activities, and charity events. In fact, if your organisation is a charity, the rules around VAT can be quite different. This is because income that isn’t related to business is often irrelevant when it comes to VAT. This includes grant funding and reward-free donations.

For the complete VAT charity rules, read more here.

Calculate VAT for your business

Being familiar with some basic information about VAT is useful for your employees who pay for expenses. It’s good to know when there’s an opportunity for travelling staff to pay less VAT or be exempt from it altogether.

For example, food and drink that’s not purchased from a restaurant is often zero-rated. And if you have employees who need to travel internationally, one of the most useful VAT exemptions is duty-free goods in airports.

You can easily keep track of all of your employees’ expenses and their VAT payment rates when they use Soldo prepaid cards for these kinds of travel costs. For those business travellers who go abroad, Soldo cards work across multiple currencies, which makes spending in other countries much easier.

VAT paid in another currency needs to be converted to pound sterling for bookkeeping purposes, so make sure you read HMRC’s simple guide for how to do that.

Different VAT schemes

As well as the standard VAT rules, there are a number of schemes designed to benefit businesses by changing the way VAT works.

For example, Retail Schemes allow you to calculate VAT once per return, instead of per sale. There’s also the Annual Accounting Scheme, which allows you to do one VAT return per year, rather than every three months. And there’s the Cash Accounting Scheme, which arranges the way you pay VAT by incoming customer payments instead of outgoing customer invoices.

This article is purely informational, so it’s important that you read more about specific VAT rules and how they apply to your business before using the VAT calculator to make any financial decisions.

How to use this VAT Calculator

The number of rules and exceptions surrounding VAT can seem daunting, but using the VAT calculator to work out what you’re responsible for charging is actually relatively simple. All you need to know is the price you’re charging for the item or service, and the VAT percentage applicable to that particular item or service.

For example, if you were selling a children’s car seat, which requires 5% VAT, you would multiply the price of the seat without VAT by 1.05. This gives you the extra five percent. So, if you’d charge £100 for the car seat without VAT, you’ll need to charge £105 once VAT is included.

Similarly, if you’re selling something with the standard VAT rate of 20%, you’d multiply its price without VAT by 1.20. For example, an invoice for £1,000 excluding VAT becomes an invoice for £1,2000 once the VAT is added. It’s as simple as that.

As long as you know the rules of the industry you’re operating in, using the VAT calculator doesn’t have to be daunting.

Reclaiming VAT

There are times when you can reclaim the VAT you’ve paid when purchasing assets for your business. For example, a vehicle bought solely for business use may be eligible for VAT reclamation, providing you can prove that the vehicle is purely for business purposes.

This is essential for reclaiming VAT: you must have the paperwork to support your claim that an item or service is for your business, not for personal use.

You can reclaim VAT as part of your VAT return. HMRC has further details about doing this their website.

How Soldo can help

The key to staying compliant when it comes to VAT is keeping accurate and up-to-date records of every business expense and sale. This is where Soldo can come in handy. Our prepaid cards are designed to make every aspect of business spending easy, from the point of purchase through to reconciliation.

Unlike traditional business credit cards, our prepaid cards allow you to set a wide range of rules and limits. You have complete control of who can spend, how much, where, and on what. This makes it much easier to keep track of your outgoings.

Soldo cards connect to our powerful expense management platform that allows you to see every transaction as it happens. With the Soldo mobile app, employees simply snap a picture of each receipt, including VAT, and upload them instantly so you can track every purchase as they travel.

This kind of real-time visibility and control means you’ll be one step ahead of overspending. You’ll have the up-to-date, accurate expense data you need to spot spending patterns and identify the areas where you can cut costs.

Switch to Soldo

For an easy way to keep track of VAT, and business expenses in general, why not try Soldo? We have a number of different plans and a custom Enterprise option, so you can choose the expense management system that suits your needs.

Simplify your spending by signing up to Soldo today in just a couple of clicks.

HMRC Travel Expenses. The image shows a woman travelling in a taxi looking at her phone.

Read our simple guide to HMRC’s rules about allowable travel expenses.

Learn more about which business travel expenses are allowable (and which ones aren’t) plus how to use expense management software to keep records HMRC can’t argue with.

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Read more about employee expenses

Frequently asked questions

How do you calculate a VAT rate?

This depends on the rate of VAT that you're adding, for example the standard rate is 20%. You calculate this by multiplying the original price by 1.20. It could also be 5%, depending on the goods or services you're working with. This rate is often applied to good and services in the protective equipment industry, for example. You calculate this by multiplying the original price by 1.05.

What is today's VAT rate in the UK?

The current standard VAT rate in the UK is 20%. This applies to most goods and services, although there are varying rates and exemptions. HMRC publishes a list of industries and the differing rates of VAT applicable to them.

Is all VAT now 20%?

20% is the standard rate, but this does vary depending on the industry and the particular goods and services that are being sold. An often-used reduced rate is 5%. This is the VAT on nicotine patches and gum, for example. On top of this, there are a number of exempt goods and services, including books and charity events. For the complete list of variations, take a look at HMRC's VAT page.

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