diff --git a/src/types/feeBreakdown.ts b/src/types/feeBreakdown.ts
index c617b046..b0a68f02 100644
--- a/src/types/feeBreakdown.ts
+++ b/src/types/feeBreakdown.ts
@@ -12,7 +12,7 @@ export interface FeeBreakdown {
 export interface PassportFeeFields {
   "application.fee.calculated": number;
   "application.fee.payable": number;
-  "application.fee.payable.vat": number;
+  "application.fee.payable.includesVAT": boolean;
   "application.fee.reduction.alternative": boolean;
   "application.fee.reduction.parishCouncil": boolean;
   "application.fee.reduction.sports": boolean;
diff --git a/src/utils/feeBreakdown.test.ts b/src/utils/feeBreakdown.test.ts
index 481dc7a1..cd1a6f10 100644
--- a/src/utils/feeBreakdown.test.ts
+++ b/src/utils/feeBreakdown.test.ts
@@ -27,7 +27,7 @@ describe("calculateReduction() helper function", () => {
     const input: PassportFeeFields = {
       "application.fee.calculated": 100,
       "application.fee.payable": 50,
-      "application.fee.payable.vat": 0,
+      "application.fee.payable.includesVAT": false,
       "application.fee.reduction.alternative": false,
       "application.fee.reduction.parishCouncil": false,
       "application.fee.reduction.sports": false,
@@ -43,7 +43,7 @@ describe("calculateReduction() helper function", () => {
     const input: PassportFeeFields = {
       "application.fee.calculated": 0,
       "application.fee.payable": 100,
-      "application.fee.payable.vat": 0,
+      "application.fee.payable.includesVAT": false,
       "application.fee.reduction.alternative": false,
       "application.fee.reduction.parishCouncil": false,
       "application.fee.reduction.sports": false,
@@ -61,7 +61,7 @@ describe("toFeeBreakdown() helper function", () => {
     const input: PassportFeeFields = {
       "application.fee.calculated": 100,
       "application.fee.payable": 50,
-      "application.fee.payable.vat": 10,
+      "application.fee.payable.includesVAT": true,
       "application.fee.reduction.alternative": false,
       "application.fee.reduction.parishCouncil": false,
       "application.fee.reduction.sports": false,
@@ -73,14 +73,13 @@ describe("toFeeBreakdown() helper function", () => {
 
     expect(amount.calculated).toEqual(input["application.fee.calculated"]);
     expect(amount.payable).toEqual(input["application.fee.payable"]);
-    expect(amount.vat).toEqual(input["application.fee.payable.vat"]);
     expect(amount.reduction).toEqual(50);
   });
 
   it("sets calculated to payable amount if no calculated value is provided", () => {
     const input: PassportFeeFields = {
       "application.fee.calculated": 0,
-      "application.fee.payable.vat": 10,
+      "application.fee.payable.includesVAT": true,
       "application.fee.payable": 50,
       "application.fee.reduction.alternative": false,
       "application.fee.reduction.parishCouncil": false,
@@ -93,6 +92,23 @@ describe("toFeeBreakdown() helper function", () => {
 
     expect(amount.calculated).toEqual(input["application.fee.payable"]);
   });
+
+  it("correctly calculates the VAT", () => {
+    const input: PassportFeeFields = {
+      "application.fee.calculated": 100,
+      "application.fee.payable": 50,
+      "application.fee.payable.includesVAT": true,
+      "application.fee.reduction.alternative": false,
+      "application.fee.reduction.parishCouncil": false,
+      "application.fee.reduction.sports": false,
+      "application.fee.exemption.disability": false,
+      "application.fee.exemption.resubmission": false,
+    };
+
+    const { amount } = toFeeBreakdown(input);
+
+    expect(amount.vat).toEqual(16.67);
+  });
 });
 
 describe("getFeeBreakdown() function", () => {
@@ -101,7 +117,7 @@ describe("getFeeBreakdown() function", () => {
       const mockPassportData = {
         "application.fee.calculated": 1000,
         "application.fee.payable": 800,
-        "application.fee.payable.vat": 160,
+        "application.fee.payable.includesVAT": ["true"],
         "some.other.fields": ["abc", "xyz"],
       };
 
@@ -112,7 +128,7 @@ describe("getFeeBreakdown() function", () => {
           calculated: 1000,
           payable: 800,
           reduction: 200,
-          vat: 160,
+          vat: 166.67,
         },
         exemptions: [],
         reductions: [],
@@ -123,7 +139,7 @@ describe("getFeeBreakdown() function", () => {
       const mockPassportData = {
         "application.fee.calculated": [1000],
         "application.fee.payable": [800],
-        "application.fee.payable.vat": [160],
+        "application.fee.payable.includesVAT": ["true"],
         "some.other.fields": ["abc", "xyz"],
       };
 
@@ -134,7 +150,7 @@ describe("getFeeBreakdown() function", () => {
           calculated: 1000,
           payable: 800,
           reduction: 200,
-          vat: 160,
+          vat: 166.67,
         },
         exemptions: [],
         reductions: [],
@@ -145,7 +161,7 @@ describe("getFeeBreakdown() function", () => {
       const mockPassportData = {
         "application.fee.calculated": 1000,
         "application.fee.payable": 800,
-        "application.fee.payable.vat": 160,
+        "application.fee.payable.includesVAT": ["true"],
         "application.fee.reduction.alternative": ["true"],
         "application.fee.reduction.parishCouncil": ["true"],
         "some.other.fields": ["abc", "xyz"],
@@ -163,7 +179,7 @@ describe("getFeeBreakdown() function", () => {
       const mockPassportData = {
         "application.fee.calculated": 1000,
         "application.fee.payable": 800,
-        "application.fee.payable.vat": 160,
+        "application.fee.payable.includesVAT": ["true"],
         "application.fee.reduction.alternative": ["false"],
         "application.fee.reduction.parishCouncil": ["false"],
         "some.other.fields": ["abc", "xyz"],
@@ -178,7 +194,7 @@ describe("getFeeBreakdown() function", () => {
       const mockPassportData = {
         "application.fee.calculated": 1000,
         "application.fee.payable": 800,
-        "application.fee.payable.vat": 160,
+        "application.fee.payable.includesVAT": ["true"],
         "application.fee.reduction.alternative": ["true"],
         "application.fee.reduction.parishCouncil": ["false"],
         "application.fee.reduction.someReason": ["true"],
@@ -200,7 +216,7 @@ describe("getFeeBreakdown() function", () => {
       const mockPassportData = {
         "application.fee.calculated": 1000,
         "application.fee.payable": 800,
-        "application.fee.payable.vat": 160,
+        "application.fee.payable.includesVAT": ["true"],
         "application.fee.exemption.disability": ["true"],
         "application.fee.exemption.resubmission": ["true"],
         "some.other.fields": ["abc", "xyz"],
@@ -218,7 +234,7 @@ describe("getFeeBreakdown() function", () => {
       const mockPassportData = {
         "application.fee.calculated": 1000,
         "application.fee.payable": 800,
-        "application.fee.payable.vat": 160,
+        "application.fee.payable.includesVAT": ["true"],
         "application.fee.exemption.disability": ["false"],
         "application.fee.exemption.resubmission": ["false"],
         "some.other.fields": ["abc", "xyz"],
@@ -233,7 +249,7 @@ describe("getFeeBreakdown() function", () => {
       const mockPassportData = {
         "application.fee.calculated": 1000,
         "application.fee.payable": 800,
-        "application.fee.payable.vat": 160,
+        "application.fee.payable.includesVAT": ["true"],
         "application.fee.exemption.disability": ["false"],
         "application.fee.exemption.resubmission": ["false"],
         "application.fee.exemption.someReason": ["true"],
@@ -264,7 +280,7 @@ describe("getFeeBreakdown() function", () => {
     it("returns undefined for partial data", () => {
       const mockPassportData = {
         "application.fee.calculated": [1000],
-        "application.fee.payable.vat": [160],
+        "application.fee.payable.includesVAT": ["true"],
         "some.other.fields": ["abc", "xyz"],
       };
 
@@ -275,7 +291,7 @@ describe("getFeeBreakdown() function", () => {
       const mockPassportData = {
         "application.fee.calculated": "some string",
         "application.fee.payable": [800, 700],
-        "application.fee.payable.vat": false,
+        "application.fee.payable.includesVAT": false,
         "some.other.fields": ["abc", "xyz"],
       };
 
diff --git a/src/utils/feeBreakdown.ts b/src/utils/feeBreakdown.ts
index 4602dbe2..93e69778 100644
--- a/src/utils/feeBreakdown.ts
+++ b/src/utils/feeBreakdown.ts
@@ -2,6 +2,8 @@ import { z } from "zod";
 
 import { FeeBreakdown, PassportFeeFields } from "../types";
 
+export const VAT_RATE = 0.2;
+
 export const toNumber = (input: number | [number]) =>
   Array.isArray(input) ? input[0] : input;
 
@@ -28,6 +30,9 @@ const getGranularKeys = (
   return granularKeys;
 };
 
+const getCalculatedAmount = (data: PassportFeeFields) =>
+  data["application.fee.calculated"] || data["application.fee.payable"];
+
 /**
  * A "reduction" is the sum of the difference between calculated and payable
  */
@@ -36,15 +41,24 @@ export const calculateReduction = (data: PassportFeeFields) =>
     ? data["application.fee.calculated"] - data["application.fee.payable"]
     : 0;
 
+const calculateVAT = (data: PassportFeeFields) => {
+  if (!data["application.fee.payable.includesVAT"]) return 0;
+
+  const calculated = getCalculatedAmount(data);
+  const vat = (calculated * VAT_RATE) / (1 + VAT_RATE);
+  const roundedVAT = Number(vat.toFixed(2));
+
+  return roundedVAT;
+};
+
 /**
  * Transform Passport data to a FeeBreakdown
  */
 export const toFeeBreakdown = (data: PassportFeeFields): FeeBreakdown => ({
   amount: {
-    calculated:
-      data["application.fee.calculated"] || data["application.fee.payable"],
+    calculated: getCalculatedAmount(data),
     payable: data["application.fee.payable"],
-    vat: data["application.fee.payable.vat"],
+    vat: calculateVAT(data),
     reduction: calculateReduction(data),
   },
   reductions: getGranularKeys(data, "application.fee.reduction"),
@@ -68,7 +82,7 @@ export const createPassportSchema = () => {
     .object({
       "application.fee.calculated": feeSchema.optional().default(0),
       "application.fee.payable": feeSchema,
-      "application.fee.payable.vat": feeSchema.optional().default(0),
+      "application.fee.payable.includesVAT": booleanSchema,
       "application.fee.reduction.alternative": booleanSchema,
       "application.fee.reduction.parishCouncil": booleanSchema,
       "application.fee.reduction.sports": booleanSchema,
diff --git a/src/utils/index.ts b/src/utils/index.ts
index 2e090575..1f736b0b 100644
--- a/src/utils/index.ts
+++ b/src/utils/index.ts
@@ -1,5 +1,5 @@
 export * from "./digitalPlanningSchema";
 export * from "./encryption";
-export { getFeeBreakdown } from "./feeBreakdown";
+export { getFeeBreakdown, VAT_RATE } from "./feeBreakdown";
 export * from "./govPayMetadata";
 export * from "./projectTypes";