VAT arithmetic is two sums, one of which almost everyone gets right and one of which trips up a surprising number of people — including people who invoice for a living. This is both of them, with the numbers shown.
How do you add VAT to a price?
Multiply by 1 plus the rate. At the UK standard rate of 20% that means multiplying by 1.2, which is the same as working out 20% and adding it on.
The working
£100.00 × 1.20 = £120.00 gross VAT charged: £120.00 − £100.00 = £20.00
At the reduced rate of 5% — domestic fuel, children’s car seats, some home energy-saving work — multiply by 1.05 instead.
How do you remove VAT from a price?
Divide by 1 plus the rate. At 20%, divide the gross price by 1.2. This is the step that goes wrong, because the obvious move — knocking 20% off — gives a different and incorrect answer.
The working
Right: £120.00 ÷ 1.20 = £100.00 net, VAT = £20.00 Wrong: £120.00 − 20% = £96.00 net, VAT = £24.00 Difference: £4.00 on a £120 invoice
The two are not the same because the percentages are taken from different numbers. The VAT was 20% of the net price, not 20% of the gross. Subtracting 20% from the gross takes off a fifth of a bigger figure, so it removes too much.
The shortcut worth memorising: VAT-inclusive to VAT-exclusive at 20% is a division by 1.2, and the VAT portion alone is the gross divided by 6. £120 ÷ 6 = £20. That second one only works at 20%.
What are the UK VAT rates?
| Rate | Called | Applies to |
|---|---|---|
| 20% | Standard | Most goods and services |
| 5% | Reduced | Domestic fuel and power, children’s car seats, some energy-saving materials |
| 0% | Zero-rated | Most food, books, newspapers, children’s clothes, public transport |
The standard rate has been 20% since 4 January 2011. Zero-rated is not the same as exempt: a zero-rated sale is still a taxable sale at a rate of nothing, which means the business can still reclaim the VAT on what it bought. An exempt sale — insurance, most financial services, postage stamps — cannot.
Working it out step by step
- Decide which figure you are holdingA net price is before VAT. A gross price is what the customer pays. Almost every mistake starts by mixing these two up, so name yours before you touch a calculator.
- Pick the multiplier1.2 for the 20% standard rate, 1.05 for the 5% reduced rate. This single number does both directions of the sum.
- Multiply to add, divide to removeNet × 1.2 gives the gross. Gross ÷ 1.2 gives the net. The VAT itself is the difference between the two, whichever way round you went.
- Check it backTake your net figure and multiply it by 1.2. If you do not land back on the gross you started with, you subtracted when you should have divided.
Common questions
How do I work out VAT backwards from a total?
Divide the total by 1.2 to get the price before VAT, then subtract that from the total to get the VAT itself. On £120: £120 ÷ 1.2 = £100 net, so the VAT is £20. A quicker route to the VAT alone at 20% is to divide the gross by 6.
Why can’t I just take 20% off the gross price?
Because the VAT was calculated as 20% of the smaller net figure, not 20% of the larger gross figure. Taking 20% off £120 removes £24, but only £20 of VAT was ever added. You end up understating the net price and overstating the VAT — on a £120 invoice, by £4.
What is the VAT fraction?
It is the shortcut for pulling VAT straight out of a gross price. At 20% it is 1/6, so gross ÷ 6 gives the VAT. At 5% it is 1/21. The fraction is rate ÷ (100 + rate), which is why it changes whenever the rate does.
Do I have to register for VAT?
Registration becomes compulsory once taxable turnover passes the threshold in any rolling 12-month period, and it can be done voluntarily below that — which is often worth it if your customers are themselves VAT-registered. The threshold is set by HMRC and changes, so check the current figure on GOV.UK rather than trusting a number on any website, including this one.
Is VAT calculated before or after a discount?
After. VAT applies to what the customer actually pays, so apply the discount first and charge VAT on the reduced amount.
What this does not cover
- VAT schemes — flat rate, cash accounting and the margin schemes for second-hand goods all change what you actually hand over, and none of them change the arithmetic above.
- The reverse charge, which shifts who accounts for the VAT on certain construction and cross-border supplies.
- Partial exemption, where a business making both taxable and exempt supplies can only reclaim some of its input VAT.
- Whether a specific product is standard, reduced, zero-rated or exempt. That is a question for HMRC’s own guidance, and getting it wrong is more expensive than any rounding error.
This is arithmetic, not tax advice. If real money turns on the answer, check it against HMRC’s guidance or ask an accountant.
Check this before you rely on it. A free guide to everyday arithmetic — not tax, accounting, financial, legal or medical advice. The working is shown above so you can verify it against your own figures. See our terms of use.