VAT Calculator
Calculate VAT on sales, work out reclaimable VAT on purchases, and decide if VAT registration makes financial sense for your trade business.
Business Details
Total revenue in last 12 months (ex VAT if not registered)
Business customers can reclaim VAT, domestic can't
Annual Purchases (What You Buy)
27% of turnover
VAT Analysis
VAT You Can Reclaim
£4000
20% of £20000 purchases
VAT You'd Charge Customers
£15000
20% of £75000 sales
Net VAT Position
⚠️ Domestic Customer Impact
50% of your customers are domestic. Adding 20% VAT could lose you some of them.
Estimated revenue loss: £1875/year
(Assumes 25% of domestic customers leave due to price increase)
✓ VAT Registration Recommended
• £4000 VAT to reclaim is significant
Net benefit: £2125/year
💰 Separate Account
Put 20% of all VAT-inclusive sales into a separate account for HMRC. Don't spend it.
📅 Quarterly Returns
VAT returns due every 3 months. Making Tax Digital (MTD) is mandatory - use accounting software.
🧾 Keep Receipts
Only valid VAT receipts (with VAT number) can be reclaimed. Keep for 6 years minimum.
Should You Register for VAT? (2025/26 Guide)
Once your turnover hits £90,000 in 12 months (2025/26 threshold), VAT registration is mandatory. But many trades register voluntarily below this to reclaim VAT on purchases. This calculator shows if it makes financial sense for you.
⚠️ The VAT Registration Trap
An electrician registered for VAT thinking "I'll reclaim VAT on my van." He could. But he lost 15% of his domestic customers who refused to pay the 20% VAT on top of his prices. His revenue dropped £18k/year.
VAT registration isn't always beneficial. If you sell to consumers (not businesses), adding 20% to your prices kills competitiveness.
VAT Registration Threshold 2025/26
Mandatory Registration
Turnover in last 12 months
Deregistration Threshold
Can deregister if turnover drops below
Standard VAT Rate
Most goods and services
When VAT Registration Helps You
✅ Register If:
- • B2B customers: They can reclaim VAT, so price doesn't matter
- • High material costs: Reclaim 20% on all purchases
- • Big equipment purchases: £10k van = £2k VAT back
- • Above £90k threshold: No choice, must register
- • Competing with VAT-registered rivals: Level playing field
- • Professional image: VAT number looks established
❌ Don't Register If:
- • Domestic customers: They can't reclaim VAT = 20% price hike
- • Low material costs: Not much VAT to reclaim
- • Price-sensitive market: 20% increase loses jobs
- • Below £90k: No requirement, more admin hassle
- • Simple business model: VAT returns add complexity
- • Cash flow tight: You pay VAT upfront, get it back later
How VAT Works for Trade Businesses
The VAT Cycle:
1. Output VAT (You Charge Customers)
Job price: £1,000 + £200 VAT = £1,200 total
You collect £200 VAT on behalf of HMRC
2. Input VAT (You Pay Suppliers)
Materials: £400 + £80 VAT = £480 total
You can reclaim the £80 VAT you paid
3. VAT Return (Quarterly)
Output VAT £200 - Input VAT £80 = £120 owed to HMRC
You pay the difference every 3 months
Real-World VAT Examples by Trade
Example 1: Electrician (B2B)
✓ Should register - customers don't care about VAT, big savings on materials
Example 2: Cleaner (B2C)
❌ Don't register - lose customers, minimal VAT to reclaim
VAT Schemes for Small Businesses
Flat Rate Scheme
Pay HMRC a fixed % of turnover (11-14.5% typical for trades). Keep the difference. Simpler accounting.
✓ Good for: Low material costs, high labour businesses
Note: Can't reclaim VAT on purchases (except capital items over £2k)
Cash Accounting
Only pay VAT when customer pays you (not when you invoice). Better for cash flow.
✓ Good for: Slow-paying customers, tight cash flow
Turnover must be under £1.35m to qualify
VAT Registration Deadlines & Penalties
🚨 Critical Deadlines:
- • Hit £90k threshold: Must register within 30 days
- • Late registration penalty: Up to 15% of VAT owed
- • Quarterly VAT returns: Due 1 month + 7 days after quarter end
- • Late payment penalty: 2% after 15 days, 4% after 30 days
- • Failure to register: Still owe VAT + penalties + interest
Common VAT Mistakes
❌ Not Monitoring the £90k Threshold
Check monthly. If you hit £90k in any rolling 12 months, you must register. Ignorance isn't an excuse - you'll owe backdated VAT.
❌ Spending the VAT You Collect
That £200 VAT isn't yours. It's HMRC's money. Set up a separate account and transfer 20% of all VAT-inclusive payments immediately.
❌ Not Keeping VAT Receipts
You can only reclaim VAT if you have a valid VAT receipt. Non-VAT receipts don't count. Keep everything for 6 years.
❌ Charging VAT Before Registration
You can't charge VAT until your registration is effective. Charging it without a VAT number is fraud.
Related Calculators
Self-Employed Tax Calculator
Calculate Income Tax and National Insurance
Job Pricing Calculator
Price jobs with VAT included or excluded
Helpful Resources
Make VAT Less Stressful
Use this calculator and guide to understand your VAT position, then keep tidy records for invoices, receipts, and returns so you're not scrambling each quarter.
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