How to calculate VAT
To add VAT, multiply the net amount by one plus the rate as a decimal: at twenty per cent, multiply by 1.2. To remove VAT, divide the gross by the same figure. Subtracting twenty per cent from a gross price is the common error and gives a different, wrong answer.
The VAT Calculator does both directions and shows the working for each. VAT Calculator
Removing VAT from a gross price
- Take the gross amount, the figure the customer paid.
- Divide it by one plus the rate as a decimal. At twenty per cent that is 1.2.
- The result is the net amount.
- Subtract the net from the gross to get the VAT itself.
Why subtracting the percentage is wrong
A hundred pounds plus twenty per cent is a hundred and twenty. Take twenty per cent off a hundred and twenty and you get ninety six, not a hundred. The percentage is applied to a different base each time, so the operation does not reverse.
Divide instead: 120 divided by 1.2 is exactly 100. That is the only method that returns you to where you started.
The UK rates, and where each applies
The standard rate is twenty per cent and covers most goods and services. A reduced rate of five per cent applies to things like domestic fuel and child car seats. A zero rate applies to most food, books and children's clothing, which is not the same as being exempt: zero rated supplies still count towards your registration threshold.
Questions people ask next
What is the UK VAT registration threshold?
Ninety thousand pounds of taxable turnover in a rolling twelve month period. Crossing it obliges you to register, and the clock is rolling rather than aligned to your financial year.
Is zero rated the same as exempt?
No, and the difference costs money. Zero rated supplies let you reclaim VAT on your own costs. Exempt supplies do not.
Which rate do I use for a customer in another country?
It depends on where they are, whether they are a business, and what you are supplying. The place of supply rules decide it, and they are worth reading properly rather than guessing.