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Margin and VAT Calculator UK (2026)

VAT-registered sellers price ex-VAT and add 20% on top; the customer pays gross. Non-registered sellers pay VAT on supplier costs without reclaiming it. This calculator does both, showing the real profit picture in each case — including the VAT you'd owe to HMRC.

Last verified: 25 April 2026 Source: GOV.UK — VAT for businesses Next review: 25 October 2026
Inputs
Net cost to you, before any VAT charged by your supplier.
Net price you charge customers; VAT (if any) is added on top.
VAT-registered sellers can reclaim VAT on supplier costs but must charge it on sales. Non-registered sellers pay supplier VAT without reclaim.
Standard rate covers most goods and services. Reduced rate for energy, kids' car seats. Zero for books, children's clothes, most food.
Cost (ex-VAT) —
Effective cost (what it actually cost you) —
Revenue (ex-VAT) —
Customer pays (gross) —
VAT collected from customer —
VAT reclaimed on cost —
Net VAT owed to HMRC —
Profit —
Profit margin % —
Markup % —
VAT-registered: £10 cost, £25 sale, standard rate
Cost £10 ex-VAT · Revenue £25 ex-VAT · VAT-registered · Standard 20%

VAT-registered: customer pays £30 (your £25 + £5 VAT). You collect £5 VAT, reclaim £2 VAT on your supplier cost, owe £3 net to HMRC. Profit £15 (£25 ex-VAT revenue - £10 ex-VAT cost). VAT washes through your books — only the customer is genuinely £5 worse off.

Not VAT-registered: same goods, same prices, different reality
Cost £10 ex-VAT (£12 inc-VAT) · Revenue £25 (no VAT charged) · Not registered

Not VAT-registered: you pay your supplier £12 (their £10 + £2 VAT) without reclaim. Customer pays £25 (no VAT charged on top). Profit £13 — £2 less than a VAT-registered competitor selling at the same ex-VAT price. This is why VAT-registered businesses can sometimes undercut non-registered competitors.

Zero-rated books: £5 cost, £12 sale
Cost £5 ex-VAT · Revenue £12 ex-VAT · VAT-registered · Zero rate

Zero-rated (books, kids’ clothes, most food): VAT charged at 0%, but you can still reclaim VAT on inputs. Profit £7. VAT-registered status helps even on zero-rated goods because you reclaim input VAT but charge none.

Reduced rate: £10 cost, £30 sale at 5%
Cost £10 · Revenue £30 · VAT-registered · Reduced 5%

Reduced rate (domestic energy, kids’ car seats, mobility aids): customer pays £31.50 (£30 + 5% VAT). Most sellers won’t encounter this rate — narrow categories. Standard rate is the default for almost all goods and services.

VAT changes the margin maths in two distinct ways depending on whether you’re registered. The calculator above does both cases — VAT-registered (where VAT washes through your books) and non-registered (where supplier VAT eats your margin invisibly).

The two regimes, side-by-side

You ARE VAT-registered: - Buy at £10 net + £2 VAT (reclaim £2 from HMRC) - Sell at £25 net + £5 VAT (collect £5 from customer) - Net to HMRC: £3 (collected £5, reclaimed £2) - Customer pays: £30 - Your profit: £15 (the VAT is a flow-through, not income)

You are NOT VAT-registered: - Buy at £10 net + £2 VAT (you pay £12, can’t reclaim) - Sell at £25 (no VAT charged) - Customer pays: £25 - Your profit: £13 (£2 of supplier VAT silently eats margin)

For the same headline ex-VAT prices, the VAT-registered seller makes £15 profit while charging the customer £30. The non-registered seller makes £13 while charging £25. Which is better for your business depends on your customer base.

Mandatory registration threshold: £90,000

Cross £90,000 of trailing 12-month UK turnover and you must register within 30 days. Late registration creates a backdated VAT bill (often substantial) plus penalties. Track monthly turnover; the MTD eligibility checker flags your status.

Below £90,000, registration is voluntary. Worth considering if: - You sell mainly to other VAT-registered businesses (B2B) - You have significant input VAT to reclaim (equipment, services, professional fees) - You’re approaching the threshold and want to avoid the registration cliff

The Flat Rate Scheme

For VAT-registered businesses below £150,000 turnover, the Flat Rate Scheme (FRS) simplifies VAT to a single percentage of gross turnover, varying by sector:

  • General retail: 7.5%
  • IT consultancy: 14.5%
  • Hairdressing: 13%
  • Photography: 11%
  • Catering: 12.5%

You charge customers the standard 20% but only pay HMRC the FRS rate. The difference is yours. Often worth £500-£3,000/year for service businesses with low input VAT. Less attractive for retailers with high input VAT (since you can’t reclaim under FRS).

What this calculator doesn’t model

  • Flat Rate Scheme — different maths entirely; calculator covers standard VAT only.
  • Second-hand goods margin scheme — used by car dealers and antique sellers; VAT on margin only, not full sale price.
  • Partial exemption — businesses with mixed taxable and exempt supplies have apportioned input VAT.
  • International VAT — UK rules only; cross-border has separate place-of-supply rules.
  • Domestic reverse charge — applies to construction services and some others.

Where to go from here

Common mistakes
  • Pricing ex-VAT but quoting inc-VAT to customers (or vice versa). A B2B seller pricing £100 ex-VAT and a B2C seller pricing £100 inc-VAT have different real revenues. Choose your convention based on your customer base: B2B usually ex-VAT, B2C usually inc-VAT.
  • Forgetting that non-registered sellers pay supplier VAT without reclaim. £10 ex-VAT cost from a VAT-registered supplier costs you £12 if you’re not registered. The £2 of un-reclaimable VAT silently eats your margin. Compare effective costs before assuming non-registration is ‘simpler.’
  • Crossing the £90,000 threshold without realising. Once your trailing 12-month turnover hits £90,000, VAT registration is mandatory within 30 days. Late registration triggers backdated VAT bills + penalties. Track turnover monthly; the MTD eligibility checker flags your status.
  • Treating VAT as a cost rather than a flow-through. For VAT-registered businesses, VAT is collected and remitted; it never belongs to you. Don’t include it as revenue or expense in your profit-and-loss — it’s a separate line.
  • Charging UK VAT on B2B EU sales. Post-Brexit rules — usually you don’t charge UK VAT on B2B EU exports (reverse charge applies, customer accounts for VAT in their country). B2C is different. Get specific advice if you’re cross-border.
What this calculator doesn't cover
  • UK VAT only — doesn’t model EU VAT or international consumption taxes.
  • Standard, reduced, and zero rates only — doesn’t include domestic reverse charge, margin scheme (second-hand goods), or flat rate scheme.
  • Doesn’t model the Flat Rate Scheme (FRS), which lets small VAT-registered businesses pay a single percentage on gross turnover instead of full VAT accounting. FRS rates vary 4-16.5% by category. Worth modelling separately for businesses turning over £150k-£230k.
  • Doesn’t include partial exemption (mixed taxable/exempt supplies).
  • Doesn’t model VAT on services to other countries (separate place-of-supply rules).
  • Doesn’t include the second-hand goods margin scheme (calculate VAT on profit margin only, not full sale price). Used by car dealers, antique sellers, second-hand bookshops.

Frequently asked questions

When does VAT registration become mandatory?

When your trailing 12-month turnover exceeds £90,000 (2025/26 threshold). You have 30 days from the breach to register. Voluntary registration is allowed below the threshold and is sometimes worth doing to reclaim input VAT, especially if you sell to other VAT-registered businesses (who don’t care about the 20% on top because they reclaim it).

Why would I voluntarily register for VAT?

Three main reasons: (1) you sell mainly to VAT-registered businesses (who don’t care about the 20% on top); (2) you have significant input VAT to reclaim (lots of equipment purchases, software subscriptions, professional services); (3) being VAT-registered signals scale to potential customers. Drawback: ~£500-£1,500/year of accountancy cost for VAT returns plus the admin overhead.

What's the Flat Rate Scheme and should I use it?

FRS lets small VAT-registered businesses pay a single percentage of gross turnover instead of full VAT accounting. Rates vary by sector (4-16.5%); you keep the difference between the 20% you charged customers and the FRS rate you paid HMRC. Available below £150k turnover; you stop using it once you hit £230k. Often worth £500-£3,000/year for service businesses with low input VAT. Run the maths against standard VAT before opting in.

What rates apply to what goods?

Standard 20% covers most goods and services. Reduced 5% covers domestic energy, mobility aids, children’s car seats, contraceptives, and a handful of niche items. Zero-rated 0% covers books and newspapers, most food, children’s clothes, and exports outside the UK. The full list is at gov.uk/vat-rates. If you’re uncertain about your products, check before pricing — getting the rate wrong has real consequences.

Does this affect my income tax?

No. VAT and income tax are separate. VAT is a consumption tax on goods and services; income tax is on profit. The calculator gives you pre-tax profit; for income tax + Class 4 NI maths, run that profit through the side hustle tax calculator.

What about international sales?

More complex post-Brexit. UK→EU B2C sales typically don’t charge UK VAT (you may need to register for OSS/IOSS for EU VAT). UK→EU B2B uses reverse charge — customer accounts for VAT in their country. UK→non-EU exports are zero-rated for UK VAT. Get specific advice if you’re cross-border; the rules are sector-specific.

About this calculator. Maintained by Jordan — a UK seller and creator who actually uses these platforms (Etsy, eBay, Vinted, DistroKid). Built to be accurate, mobile-fast, and honest about its limits. Spot a bug? Email hello@payoutmath.co.uk.