Published 1 January 2025 · 4 min read
How to Calculate VAT — Adding and Removing VAT Explained
Value Added Tax (VAT) is a consumption tax applied to most goods and services in the UK. Whether you are a business owner preparing invoices or a consumer trying to work out the pre-tax price of a purchase, understanding how to add and remove VAT correctly is essential.
The standard UK VAT rate
The standard VAT rate in the UK is 20%. This rate applies to most goods and services. There are also two reduced rates: a 5% reduced rate (for items such as home energy and child car seats) and a 0% zero rate (for essentials like most food, children's clothing, and books).
How to add VAT to a price
Adding VAT to a net (excluding VAT) price is straightforward. Multiply the net amount by 1.20 for the standard 20% rate.
Formula: Price including VAT = Net price × 1.20
For example, if a product costs £100 before VAT, the VAT-inclusive price is £100 × 1.20 = £120. The VAT amount itself is £20.
For the 5% reduced rate, multiply by 1.05 instead.
How to remove VAT from a price
This is where many people make a costly mistake. To remove VAT from a gross (VAT-inclusive) price, you must divide by 1.20 — not subtract 20%.
Formula: Price excluding VAT = Gross price ÷ 1.20
For example, if the VAT-inclusive price is £120, the net price is £120 ÷ 1.20 = £100. The VAT portion is £20.
The most common mistake
A frequent error is subtracting 20% from the gross price to find the net amount. If you take £120 and subtract 20%, you get £120 − £24 = £96, which is wrong. The correct net price is £100. This mistake arises because 20% of £120 (£24) is not the same as 20% of £100 (£20). VAT is calculated on the net price, not the gross price.
Quick reference formulas
| Task | Standard rate (20%) | Reduced rate (5%) |
|---|---|---|
| Add VAT | Multiply by 1.20 | Multiply by 1.05 |
| Remove VAT | Divide by 1.20 | Divide by 1.05 |
| Find VAT amount | Divide by 6 | Divide by 21 |
When does VAT apply?
Not everything carries VAT. Zero-rated items include most food and drink (excluding restaurant meals and takeaways), children's clothes and shoes, books and newspapers, and public transport. Some items are VAT-exempt entirely, such as insurance, education, and health services provided by registered practitioners.
Tips for businesses
- Always check whether your product or service falls under the standard, reduced, or zero rate before invoicing.
- Keep VAT records for at least six years as required by HMRC.
- You must register for VAT if your taxable turnover exceeds £90,000 in a 12-month period.
- Use the VAT fraction (divide by 6) as a quick mental shortcut to extract the VAT from a gross price at 20%.
Calculate VAT instantly
Use our free VAT Calculator to add or remove VAT at any rate — no formulas needed.
Open VAT Calculator