How to Calculate VAT
VAT (Value Added Tax) is a consumption tax added to most goods and services. In the UK, the standard rate is 20%. The key calculation distinction is whether you're starting with a net price (ex-VAT) and adding VAT, or starting with a gross price (inc-VAT) and extracting the VAT component.
Adding VAT (Net to Gross)
Gross price = Net price × (1 + VAT rate/100). At 20%: £500 net × 1.20 = £600 gross. The VAT amount is £100. This is used when quoting business-to-business prices, creating invoices, or calculating how much a customer will pay.
Removing VAT (Gross to Net)
Net price = Gross price ÷ (1 + VAT rate/100). At 20%: £600 gross ÷ 1.20 = £500 net. The VAT amount is £100. This is used when you have a VAT-inclusive price and need to know the net amount — for example, reclaiming VAT on business expenses, or checking a supplier invoice.
Common Mistake — Percentages
A frequent error: if a price includes 20% VAT, the VAT is NOT 20% of the gross price. It's 20/120 = 16.67% of the gross price. On a £120 gross price, multiplying by 20% gives £24 — wrong. Dividing by 1.20 and subtracting gives £20 — correct. Our calculator handles this automatically.
Frequently Asked Questions
How do I add VAT to a price?
To add VAT to a price, multiply the net (pre-VAT) price by (1 + VAT rate/100). For 20% UK VAT: multiply net price by 1.20. For example, £100 net × 1.20 = £120 gross (VAT-inclusive). The VAT amount is £20.
How do I remove VAT from a price?
To remove (reverse out) VAT from a gross (VAT-inclusive) price, divide by (1 + VAT rate/100). For 20% UK VAT: divide gross price by 1.20. For example, £120 ÷ 1.20 = £100 net. The VAT amount is £120 − £100 = £20. Note: you cannot simply multiply by 20% to find the VAT on a gross price — that gives the wrong answer.
What is the UK VAT rate?
The standard UK VAT rate is 20%. A reduced rate of 5% applies to certain goods including domestic fuel, children's car seats and some energy-saving materials. A zero rate (0%) applies to food, children's clothing, books, newspapers and certain other items. Some services are VAT-exempt, meaning no VAT is charged and the business cannot reclaim VAT on related costs.
What is the VAT registration threshold in the UK?
Businesses with taxable turnover over £90,000 (2024/25) must register for VAT. Below this threshold, registration is voluntary. Once registered, businesses must charge VAT on sales and can reclaim VAT paid on business purchases. The threshold has been frozen for several years and was raised from £85,000 to £90,000 in April 2024.
What are EU VAT rates?
EU member states set their own VAT rates within EU rules. Standard rates across the EU typically range from 17% (Luxembourg) to 27% (Hungary). Germany is 19%, France 20%, Ireland 23%, Italy 22%, Spain 21%, Netherlands 21%, Poland 23%, Sweden 25%. A reduced rate typically applies to food and essential goods. The EU minimum standard rate is 15%.