What is the VAT formula?

To add VAT: Gross price = Net price × (1 + VAT rate). To remove VAT: Net price = Gross price ÷ (1 + VAT rate). VAT amount = Gross price − Net price.

How to Calculate VAT: Add & Remove VAT Explained (With Examples)

Q: How do I add 20% VAT to a price?

To add 20% VAT to a price, multiply the net (ex-VAT) price by 1.20. For example: £100 × 1.20 = £120 including VAT. The VAT amount is £20.

Q: How do I remove VAT from a price?

To remove 20% VAT from a VAT-inclusive price, divide by 1.20. For example: £120 ÷ 1.20 = £100 net price. The VAT amount is £20. Do not subtract 20% directly — this gives the wrong answer.

Q: What are the current UK VAT rates?

The UK has three VAT rates: Standard rate (20%) — applies to most goods and services. Reduced rate (5%) — applies to things like home energy, children's car seats, and some renovation work. Zero rate (0%) — applies to most food, children's clothing, books, and newspapers.

VAT — Value Added Tax — trips people up constantly. Whether you're a freelancer invoicing a client, a small business owner pricing your products, or a consumer trying to understand what you actually paid, getting VAT calculations right matters.

In this guide we'll break down exactly how to add VAT to a price, how to remove VAT from a total, the formula to use, and the single most common mistake people make when doing VAT in their head.

What Is VAT?

Value Added Tax (VAT) is a consumption tax applied to most goods and services at each stage of production and sale. In the UK it was introduced in 1973, and today it's the third-largest source of government revenue after income tax and National Insurance.

As a consumer, you pay VAT on most things you buy. As a business, you collect VAT from customers on behalf of the government — and if you're VAT-registered, you can reclaim the VAT you've paid on your own business purchases.

      ℹ️ VAT vs Sales Tax
      VAT is not the same as US-style sales tax. Sales tax is only applied at the final point of sale to the consumer. VAT is applied at every stage of the supply chain — but businesses can reclaim the VAT they pay, so only the end consumer ultimately bears the cost.
    

VAT Rates — Standard, Reduced & Zero

In the UK there are three VAT rates, and knowing which applies to your product or service is the crucial first step before any calculation.

20%

Standard Rate

Most goods & services — electronics, clothing, restaurants, professional services

Reduced Rate

Home energy, children's car seats, mobility aids, some renovation work

Zero Rate

Most food, children's clothing, books, newspapers, public transport

      ⚠️ Zero-rated vs VAT-exempt — not the same thing
      Zero-rated goods are still VAT-taxable — the rate just happens to be 0%. VAT-exempt goods (insurance, financial services, education) fall outside the VAT system entirely. The distinction matters for VAT-registered businesses when reclaiming input tax.
    

How to Add VAT to a Price

Adding VAT is straightforward. You have a net price (ex-VAT) and you want to find the gross price (inc-VAT).

Gross price = Net price × (1 + VAT rate)

// Standard rate (20%): Net × 1.20
// Reduced rate (5%): Net × 1.05
// Zero rate (0%): Net × 1.00 (no change)

// Example: £250 net price + 20% VAT
£250 × 1.20 = £300 gross price (£50 VAT)

✏️ Worked Example — Adding 20% VAT

Start with your net (ex-VAT) price
Net price = £450.00

Multiply by 1.20 (for 20% VAT)
£450.00 × 1.20 = £540.00

The difference is your VAT amount
VAT = £540.00 − £450.00 = £90.00

🧾 Try Our Free VAT Calculator Add or remove VAT at any rate — instant result

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How to Remove VAT from a Price

Removing VAT is where most people go wrong. You have a gross price (inc-VAT) and need to find the net price (ex-VAT) — perhaps for an invoice, a VAT return, or to understand what you're actually paying before tax.

Net price = Gross price ÷ (1 + VAT rate)

// Standard rate (20%): Gross ÷ 1.20
// Reduced rate (5%): Gross ÷ 1.05

// Example: £360 inc-VAT price — what is the net?
£360 ÷ 1.20 = £300 net price (£60 VAT)

✏️ Worked Example — Removing 20% VAT

Start with your gross (inc-VAT) price
Gross price = £720.00

Divide by 1.20 (for 20% VAT)
£720.00 ÷ 1.20 = £600.00 net

The difference is your VAT amount
VAT = £720.00 − £600.00 = £120.00

The Most Common VAT Mistake

The single most common error when removing VAT is subtracting the VAT percentage directly from the gross price. This always gives the wrong answer — and here's why:

// WRONG approach (very common mistake):
£120 − (£120 × 20%) = £120 − £24 = £96 ❌

// RIGHT approach:
£120 ÷ 1.20 = £100.00 ✓

// Why? VAT is calculated on the NET price (£100),
// not on the gross (£120). 20% of £100 = £20.
// 20% of £120 = £24 — which is wrong.

VAT is always a percentage of the net price — never the gross. That's why you divide to remove it, not subtract.

      ❌ Never subtract the percentage directly
      Subtracting 20% from a VAT-inclusive price gives the wrong net amount and wrong VAT figure every time. Always divide by (1 + rate) to extract VAT correctly. This is the most important thing to remember from this entire guide.
    

Worked Examples at Every VAT Rate

Adding VAT — all rates

Net Price	VAT Rate	Multiplier	VAT Amount	Gross Price
£100	20%	× 1.20	£20.00	£120.00
£250	20%	× 1.20	£50.00	£300.00
£100	5%	× 1.05	£5.00	£105.00
£1,200	5%	× 1.05	£60.00	£1,260.00
£85	20%	× 1.20	£17.00	£102.00

Removing VAT — all rates

Gross Price	VAT Rate	Divisor	Net Price	VAT Amount
£120	20%	÷ 1.20	£100.00	£20.00
£360	20%	÷ 1.20	£300.00	£60.00
£105	5%	÷ 1.05	£100.00	£5.00
£945	5%	÷ 1.05	£900.00	£45.00
£2,400	20%	÷ 1.20	£2,000.00	£400.00

🧾 Skip the maths — use our VAT calculator Add or remove VAT at 20%, 5%, or 0% — instant results

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VAT for Small Businesses

If you run a business, VAT affects you differently depending on whether you're registered. Here's what you need to know:

If you're VAT-registered

Output VAT: The VAT you charge customers on your sales — you collect this and pay it to HMRC
Input VAT: The VAT you pay on your business purchases — you can reclaim this from HMRC
VAT return: Filed quarterly (usually) — you pay the difference between output and input VAT
You must issue VAT invoices to VAT-registered customers showing the VAT amount separately

If you're not VAT-registered

You cannot charge VAT and cannot reclaim VAT on purchases
Your prices are automatically lower than VAT-registered competitors when selling to consumers
But you may be less competitive when selling to VAT-registered businesses (who can't reclaim VAT you haven't charged)

      ✅ Voluntary VAT registration tip
      If most of your customers are VAT-registered businesses, registering voluntarily — even below the threshold — can be financially beneficial. You can reclaim VAT on all your business expenses, potentially saving thousands per year.
    

Do You Need to Register for VAT?

In the UK, VAT registration is compulsory once your taxable turnover exceeds the registration threshold in any rolling 12-month period.

£90,000 UK VAT Threshold 2024/25

30 days To register after exceeding threshold

Quarterly Typical VAT return frequency

Situation	Action Required
Turnover exceeds £90,000 in 12 months	Must register immediately
Expect to exceed £90,000 in next 30 days	Must register immediately
Turnover below £90,000	Can register voluntarily
Turnover falls below £88,000	Can apply to deregister

      ⚠️ Penalties for late registration
      HMRC can charge penalties based on the VAT you should have collected from the date you were required to register. If your turnover is approaching the threshold, monitor it carefully and register promptly to avoid fines.
    

🧾 Quick VAT Cheat Sheet

What you want to do	Formula	20% example
Add 20% VAT	Net × 1.20	£100 → £120
Add 5% VAT	Net × 1.05	£100 → £105
Remove 20% VAT	Gross ÷ 1.20	£120 → £100
Remove 5% VAT	Gross ÷ 1.05	£105 → £100
Find VAT amount (adding)	Net × VAT rate	£100 × 0.20 = £20
Find VAT amount (removing)	Gross − (Gross ÷ 1.20)	£120 − £100 = £20

Frequently Asked Questions

How do I add 20% VAT to a price? +

Multiply the net (ex-VAT) price by 1.20. For example, £100 × 1.20 = £120 including VAT. The VAT amount is £20. Use our free VAT calculator for instant results on any amount.

How do I remove VAT from a price? +

Divide the gross (inc-VAT) price by 1.20 for 20% VAT, or by 1.05 for 5% VAT. For example: £120 ÷ 1.20 = £100 net. Do NOT subtract 20% directly — this always gives the wrong answer because VAT is calculated on the net price, not the gross.

What are the current UK VAT rates? +

The UK has three VAT rates: Standard rate (20%) applies to most goods and services. Reduced rate (5%) applies to home energy, children's car seats, and some renovation work. Zero rate (0%) applies to most food, children's clothing, books, and newspapers.

Do I need to register for VAT? +

In the UK, you must register for VAT if your taxable turnover exceeds £90,000 in any rolling 12-month period (2024/25 threshold). You can also register voluntarily below this threshold, which can be beneficial if your customers are VAT-registered businesses who can reclaim input VAT.

What is the difference between zero-rated and VAT-exempt? +

Zero-rated goods are subject to VAT — the rate is just 0%. VAT-exempt goods and services fall outside the VAT system entirely. The difference matters for businesses: if you sell zero-rated goods, you can still reclaim input VAT on your purchases. If you sell VAT-exempt goods, you generally cannot.

Can I reclaim VAT on business purchases? +

Yes — if you're VAT-registered, you can reclaim the VAT (input tax) you've paid on business purchases, as long as those purchases relate to VAT-taxable activities. You reclaim this on your quarterly VAT return by deducting input VAT from the output VAT you've collected.

How to Calculate VATAdd & Remove VAT Explained