How to Calculate VAT: Add or Remove VAT Easily

What is VAT?

VAT, or Value Added Tax, is a tax added to many goods and services. A net price is the amount before VAT. A gross or VAT-inclusive price includes the tax.

The VAT rate depends on the country and the type of goods or services, so always use the rate that applies to the transaction you are calculating.

Want to try the idea yourself? Use the VAT Calculator.

How to add VAT

To add VAT, multiply the net price by 1 plus the VAT rate written as a decimal. At 20% VAT, multiply by 1.20.

For example, £100 before VAT becomes £120 including 20% VAT. The VAT amount is £20.

If you want to explore this topic further, see Percentage Calculations Explained Simply.

How to remove VAT correctly

To find the net amount from a VAT-inclusive price, divide by 1 plus the VAT rate. At 20%, divide by 1.20.

A £120 VAT-inclusive price therefore has a £100 net value and £20 VAT. Simply subtracting 20% from £120 would give £96, which is wrong because the 20% VAT was calculated from the £100 net price, not from £120.

Finding just the VAT amount

Once you know the gross and net values, subtract the net amount from the gross amount. In the £120 example, £120 minus £100 gives £20 VAT.

For bookkeeping or invoices, keep clear whether each figure is net, VAT or gross so you do not accidentally apply the tax twice.

Use a VAT calculator

The VAT Calculator can add or remove VAT without doing the formula manually. Enter the amount and appropriate rate, then choose whether you are starting with a net or VAT-inclusive figure.

For actual tax reporting, check the current rules and rates that apply to your business and transaction.