UK Reverse VAT Examples 2026

Reverse VAT formula

At the UK standard 20% rate, divide the gross total by 1.20 to find the net amount. VAT is gross minus net. For example, GBP 120 / 1.20 = GBP 100 net, and the VAT element is GBP 20.

Do not subtract 20% from the gross total. Subtracting 20% from GBP 120 gives GBP 96, which is wrong because VAT is 20% of the net price, not 20% of the gross price.

The same principle applies at the 5% reduced rate: divide by 1.05, not subtract 5%. For zero-rated items the divisor is 1.00, so the entire gross amount is net and there is no VAT element to reclaim.

Businesses dealing with mixed-rate invoices should generally split each line item by rate before applying the divisor. Applying a blended divisor across the whole invoice often produces rounding errors that may cause issues during a VAT inspection.

Domestic reverse charge for construction (CIS)

Since March 2021, qualifying construction services under the Construction Industry Scheme (CIS) may use the domestic reverse charge. Under this mechanism, the customer — rather than the supplier — accounts for VAT on the supply. The supplier invoices without adding VAT but must note that the reverse charge applies.

The reverse charge generally applies when both parties are VAT-registered, the supply falls within the CIS scope, and the customer is not an end-user or intermediary connected to an end-user. Subcontractors should check whether each contract qualifies before issuing a reverse-charge invoice.

Accounting software often requires a specific tax code for CIS reverse-charge transactions. Posting a reverse-charge supply under the normal 20% output-tax code can create duplicate VAT liabilities or incorrect return box figures.

If you are unsure whether a particular job qualifies, HMRC guidance and your accountant can help. Getting the reverse-charge decision wrong may result in penalties for the supplier, the customer, or both.

Import VAT reverse charge post-Brexit

Since January 2021, UK businesses importing goods from outside the UK may use postponed VAT accounting (PVA). Instead of paying import VAT at the border and reclaiming it later on the VAT return, PVA allows the business to account for the import VAT and reclaim it on the same return — improving cash flow considerably.

PVA is generally available to VAT-registered importers who declare goods through customs. The monthly postponed import VAT statement from HMRC shows the amounts to include in Boxes 1 and 4 of the VAT return. Businesses should reconcile the statement against shipping records each period.

Businesses on the Flat Rate Scheme generally cannot reclaim import VAT using PVA in the same way, because the flat rate scheme restricts input-tax recovery. If import VAT is material, it may be worth reviewing whether the flat rate scheme still offers a net benefit.

Business purchases and partial exemption

When a VAT-registered business makes both taxable and exempt supplies, it is often partially exempt. Partial exemption limits the amount of input VAT the business can recover on costs that relate to exempt activities.

The standard method apportions residual input tax based on the ratio of taxable turnover to total turnover. HMRC may also approve special methods if the standard method produces an unreasonable result for a particular business.

Reverse-VAT arithmetic still matters here: extracting the VAT element from an expense receipt is the first step, but then the business must decide how much of that VAT is actually recoverable under its partial-exemption method.

If the total exempt input tax is below the de minimis threshold — generally GBP 625 per month on average and no more than 50% of total input tax — the business may recover all input tax. Check with your accountant or HMRC to confirm current limits.

Bookkeeping notes

Reverse VAT is common for expense claims, bookkeeping, and checking supplier invoices. VAT-registered businesses may need the VAT element for input tax records.

A calculator can do the arithmetic, but it cannot decide whether an expense is reclaimable. Keep proper VAT invoices and confirm treatment with HMRC guidance or an accountant.

For Making Tax Digital (MTD), ensure your accounting software records the gross, net, and VAT amounts separately for each transaction. Bulk-posting a monthly total without line-level detail may not satisfy MTD record-keeping requirements.