VAT-Inclusive Pricing Calculator — Work Out Your Selling Price

How to use this calculator

1. 1 Choose your direction: select Work out my selling price if you know your costs and want to hit a target profit margin, or select Check a price's margin if you already have a selling price and want to know what margin you are actually making.
2. 2 Enter your figures: type in your cost price (what the product costs you before VAT), your desired margin percentage or your existing selling price, and select the VAT rate that applies to your product.
3. 3 Read your results: the calculator instantly shows your recommended selling price including VAT, the VAT component, your net selling price, and your actual profit margin, updating as you type. In selling price mode, use the ↑£1, ↑£5, ↑£10 round-up buttons to snap the price to a friendlier number and see the updated margin.

How VAT-inclusive pricing works

When a customer pays you £120 for a product, that full £120 does not belong to you. Twenty pounds of it belongs to HMRC. Your profit comes entirely from the net amount, which is £100. This is the part that needs to cover your costs and leave something over. So if a product costs you £40, your margin calculation has to start from the net selling price, not the VAT-inclusive price the customer sees on the label.

Here is where many business owners go wrong. Say you want a 30% margin on that £40 product. The tempting approach is to add 30% to the cost price (£40 + £12 = £52 net), then add 20% VAT on top (£52 × 1.20 = £62.40). The problem is that 30% of £52 is not the same as 30% of your revenue. When you strip the VAT back out of £62.40, your net revenue is £52, your cost is £40, and your actual margin is £12 on £52 — which works out at 23.1%, not 30%. The correct approach is to work backwards from the margin you want, which is exactly what this calculator does for you.

Formula

Direction 1 — Work out selling price:
  Net selling price   = Cost ÷ (1 − Margin%)
  VAT-inclusive price = Net price × (1 + VAT rate)

Direction 2 — Check a price's margin:
  Net selling price   = Gross price ÷ (1 + VAT rate)
  Profit              = Net price − Cost
  Gross margin        = Profit ÷ Net price × 100
  Markup              = Profit ÷ Cost × 100

Worked example

Frequently asked questions

How do I calculate a VAT-inclusive selling price from my target margin?

Divide your cost price by one minus your desired margin (expressed as a decimal), then multiply the result by 1.20 to add 20% VAT. For example, a product that costs £50 with a target margin of 35% works out as: £50 ÷ (1 − 0.35) = £76.92 net, then £76.92 × 1.20 = £92.31 including VAT. Always use this method rather than adding margin to your cost price first and then adding VAT, as that approach gives you a lower margin than you intended.

What is the difference between margin and markup?

Margin is your profit expressed as a percentage of your selling price (revenue). Markup is your profit expressed as a percentage of your cost price. If something costs £60 and you sell it for £80 net, your profit is £20. The markup is £20 ÷ £60 = 33.3%. For margin, you divide by revenue instead: £20 ÷ £80 = 25%. Both figures use the same profit, but dividing by different numbers produces very different percentages. Margin is generally the more useful measure because it shows what percentage of each pound of revenue you actually keep.

How do I work out my profit margin on a VAT-inclusive price?

First, remove the VAT to find your net selling price: divide the VAT-inclusive price by 1.20 (for standard rate) or 1.05 (for reduced rate). Then subtract your cost price to find your profit. Finally, divide that profit by the net selling price and multiply by 100 to get your margin percentage. For example: a product selling at £96 including VAT has a net price of £80. If it costs £55, your profit is £25, and your margin is £25 ÷ £80 × 100 = 31.25%. The Reverse VAT Calculator can help you strip VAT out of any price quickly.

Should I set prices including or excluding VAT?

It depends on your customers. If you sell to consumers, UK law requires you to display prices including VAT. You cannot advertise a product at £100 and then add VAT at the till. If you sell primarily to other VAT-registered businesses, you can show prices excluding VAT, though you should make clear that VAT will be added. Many B2B businesses display both — for example "£100 + VAT (£120 inc. VAT)". A trade buyer will be used to ex-VAT prices and can reclaim the VAT anyway. A consumer needs the full price they will actually pay.

How does VAT affect my profit margin?

VAT does not reduce your profit margin if you price correctly, because you collect VAT from customers and pass it straight to HMRC. Your margin is always calculated on the net amount. The risk is in the pricing calculation: if you base your margin on the VAT-inclusive selling price rather than the net price, you will think your margin is higher than it really is. Always strip VAT out before running any margin calculation. Your costs are ex-VAT (assuming you are VAT-registered and reclaim input VAT), and your revenue for margin purposes is the net selling price.

Can I charge different VAT rates on different products?

Yes. HMRC sets VAT rates by the type of goods or service, not by the business. You might sell products at the standard 20% rate alongside others that qualify for the reduced 5% rate or the zero rate. Food, children's clothing, and books are zero-rated. Energy-saving materials and children's car seats attract the 5% rate. You apply the correct rate to each product individually. If your product range spans multiple rates, your pricing calculation needs to handle each rate separately rather than applying a blanket 20% to everything.

Do I need to show the VAT amount separately on my prices?

If you sell to consumers, you do not need to show the VAT separately on a price tag or website listing, as long as the price displayed is the VAT-inclusive total. However, if a customer asks for a VAT receipt or invoice, you must show the VAT amount, your VAT registration number, and the applicable rate. If you sell to other businesses and issue VAT invoices, you must show the net amount, the VAT rate, the VAT amount, and the VAT-inclusive total on every invoice.

What happens to my pricing if I become VAT-registered?

When you register for VAT, you start charging 20% VAT on top of your prices. For business customers who are themselves VAT-registered, this makes no difference because they can reclaim the VAT. For consumers or non-VAT-registered businesses, your prices effectively rise by 20% unless you absorb the VAT by reducing your net prices. Many new registrants face this decision: pass the VAT on and raise prices, or keep prices the same and accept a lower net margin. The VAT Registration Threshold Calculator can help you work out when registration becomes a requirement.

Common mistakes

• Adding margin to cost price and then adding VAT on top. This is the most widespread pricing error in small business. If you add 40% to a £60 product, you get a net price of £84. Then you add 20% VAT to get £100.80. But your margin is not 40%. Strip the VAT off £100.80 and your net revenue is £84. Your profit is £24 on £84, which is a margin of 28.6%. To actually achieve a 40% margin, you need to start with the formula: £60 ÷ (1 − 0.40) = £100 net, then add VAT to get £120 including VAT.
• Confusing margin and markup percentages. This leads to systematically underpriced products, often by a significant amount. A 25% markup and a 25% margin are not the same thing. If a competitor tells you they work to a 25% margin and you accidentally price to a 25% markup, your prices will always be lower than theirs and your actual margin will be lower too. Keep the distinction clear: markup is on cost, margin is on revenue.
• Forgetting that the VAT element belongs to HMRC, not the business. If you collect £1,200 in sales including VAT, you have not made £1,200 of revenue. You have made £1,000 of revenue and collected £200 on HMRC's behalf. Cash flow planning, margin calculations, and any analysis of profitability must always use the net figure. Treat VAT as a pass-through from the moment money hits your account. The Standard VAT Calculator can help you split any gross amount into its net and VAT components.
• Not reviewing prices when costs change. If your cost price rises from £40 to £48 and your selling price stays at £68.57, your margin drops from 30% to 16%. Many business owners set prices once and revisit them rarely. Costs for materials, postage, platform fees, and supplier rates all shift over time. Running your figures through this calculator regularly — particularly after any supplier price change — keeps your margins where you actually want them.

VAT rules and HMRC guidance

HMRC sets out the rules on displaying prices to the public in its guidance on price marking. If you sell to consumers, prices must always be shown inclusive of VAT — you cannot advertise a product at £100 and then add VAT at the till. The rules on VAT invoices, including what information they must contain and when you must issue them, are covered in HMRC VAT Notice 700, which you can read in full at gov.uk/guidance/vat-guide-notice-700.

Section 16 of VAT Notice 700 covers VAT and pricing for both retail and wholesale situations, including what must appear on a VAT invoice. If you sell a mix of standard-rated, reduced-rated, and zero-rated goods, HMRC's guidance on the liability of different goods and services will help you apply the correct rate to each product. You can find those pages at gov.uk/guidance/rates-of-vat-on-different-goods-and-services. Getting rates wrong, even accidentally, can result in penalties, so checking against HMRC's own lists before finalising your pricing is a sensible step.