Guide
UK VAT Examples for Small Businesses
Real, simple VAT calculations for UK service businesses and online shops — plus the most common mistakes to avoid.
Quick refresher
If you're VAT registered, you charge VAT on most sales and pass it to HMRC. The standard UK VAT rate is 20%. To add VAT, multiply the net price by 1.20. To find the VAT inside a gross price, divide by 1.20.
You can run any of these examples instantly in the VAT Calculator.
Example 1 — Service business (consultant)
A management consultant quotes £1,500 (net) for a one-week project. They are VAT registered, so they add 20% VAT to the invoice:
£1,500 × 1.20 = £1,800 gross
VAT due to HMRC = £300
The client pays £1,800. The consultant keeps £1,500 and forwards £300 to HMRC on their next VAT return.
Example 2 — Freelance designer with mixed work
A freelance designer charges £400 for a logo and £900 for brand guidelines in the same month. Both are at 20% VAT:
Net total = £1,300
VAT @ 20% = £260
Gross total = £1,560
Example 3 — Ecommerce (consumer-facing)
A small online shop sells a candle for £24 including VAT. To find the net (what they actually keep before costs):
£24 ÷ 1.20 = £20.00 net
VAT element = £4.00
Consumer prices in the UK must usually be shown VAT-inclusive. That £24 sticker price is the customer's price; £4 is HMRC's share.
Example 4 — Ecommerce wholesale
The same shop sells the same candle wholesale to a retailer for £12 net per unit, 100 units:
Net order = 100 × £12 = £1,200
VAT @ 20% = £240
Gross order = £1,440
Trade prices are usually quoted net (the buyer can normally reclaim VAT).
Example 5 — Mixed VAT rates
A café sells hot food (20%) and qualifying children's items (0%). Each line on the invoice carries its own VAT rate, then the totals roll up:
Hot food net £80 → VAT £16
Children's items net £20 → VAT £0
Gross total = £116
Common mistakes
- Quoting net to a consumer: Telling a customer "£100" and then adding VAT later. Consumer-facing prices must include VAT.
- Multiplying gross by 20%: That gives 20% of the gross, not the VAT inside it. Always divide by 1.20.
- Forgetting your VAT number: A VAT invoice without your VAT registration number is not a valid VAT invoice.
- Charging VAT before you're registered: You cannot charge VAT until HMRC issues your VAT number.
Issue a VAT-compliant invoice
Once you've worked out the numbers, drop them into the Invoice Generator or use the ready-made UK VAT Invoice Template with the net / VAT / gross breakdown HMRC expects.
Frequently asked questions
Do all UK small businesses charge VAT?
No. You only charge VAT if you're VAT registered. Registration is required once your taxable turnover crosses the VAT threshold, but you can also register voluntarily.How do I add 20% VAT to a price?
Multiply the net price by 1.20. A £200 service becomes £240 gross, of which £40 is VAT passed on to HMRC.What VAT rate applies to most products?
Most goods and services use the standard 20% rate. A small number of items use the 5% reduced rate or the 0% zero rate. Some supplies are exempt and don't have VAT at all.Can I reclaim VAT on business purchases?
Yes, if you're VAT registered. The VAT you pay on eligible business purchases (input tax) can be deducted from the VAT you charge on sales (output tax). You pay HMRC the difference.Is this tax advice?
No. This guide is for general information. Always check GOV.UK or speak to an accountant before making tax decisions.