UK Business Calculator Formulas Explained

This page documents the calculation methodology behind every PoundKit calculator, so you can reproduce any result by hand or in a spreadsheet. Every formula below is the same one the tools run in your browser.

VAT formula

Add VAT

VAT = Net amount × VAT rate
Gross = Net amount + VAT

Example — add 20% VAT

Net: £100
VAT rate: 20%
VAT: £20
Gross: £120

Remove VAT

Net = Gross ÷ (1 + VAT rate)
VAT = Gross − Net

Example — remove 20% VAT

Gross: £120
Net: £100
VAT: £20

UK rates are 20% standard, 5% reduced and 0% zero-rated. Which rate applies depends on the goods or services — check official sources when needed.

Profit margin formula

Profit margin

Profit margin = (Selling price − Cost) ÷ Selling price × 100

Example

Cost: £30
Selling price: £50
Profit: £20
Margin: 40%

Markup formula

Markup

Markup = Profit ÷ Cost × 100

Example

Cost: £30
Profit: £20
Markup: 66.67%

Break-even formula

Break-even units

Break-even units = Fixed costs ÷ Contribution margin
Contribution margin = Selling price − Variable cost per unit

Example

Fixed costs: £10,000
Selling price: £50
Variable cost: £30
Break-even: 500 units

Freelance rate formula

Day rate

Day rate = (Income target + Expenses) ÷ Billable days
Hourly rate = Day rate ÷ Billable hours per day

Example

Income target: £45,000
Expenses: £0
Billable days: 220
Day rate: ≈ £205

Invoice total formula

Invoice totals

Line total = Quantity × Unit price
Net total = Sum of line totals
VAT total = Net × VAT rate
Final total = Net + VAT

Quote totals use the same method with a per-line discount applied before VAT: line net = quantity × unit price × (1 − discount).

Test cases

Calculator formulas are tested against PoundKit test cases. Each release runs the cases below and the calculators must reproduce them exactly.

Area	Test cases
VAT tests	Add 20% to £100 → VAT £20, gross £120 Remove 20% from £120 → net £100, VAT £20 Add 5% to £200 → VAT £10, gross £210
Margin tests	Revenue £200, cost £120 → margin 40%, markup 66.67% Cost £50, target margin 30% → price £71.43
Break-even tests	Fixed £10,000, price £50, variable £30 → 500 units … with £5,000 target profit → 750 units
Freelance rate tests	£45,000 target, 220 days → day rate ≈ £205 Day rate £400, 8 hrs → hourly £50
Invoice tests	2 × £150 at 20% VAT → net £300, VAT £60, total £360 Quote line with 10% discount → net £270 before VAT

The full case list lives on the calculator formulas & test cases reference page.

Try the calculators

UK VAT Calculator →

Add or remove VAT at any UK rate.

Profit Margin Calculator →

Margin, markup and target price.

Break-even Calculator →

Units needed to cover fixed costs.

Freelance Rate Calculator →

Back-solve a sustainable day rate.

Free UK Invoice Generator →

Invoice totals using the formulas above.

VAT Calculator Widget →

Embed the VAT calculator on your own site.

This page explains calculation methodology and is for general information only. It does not replace professional accounting advice.