ReckonBoxAdding and removing VAT
VAT is a consumption tax added to the price of most goods and services, and the arithmetic differs depending on whether you are adding it or taking it back out. Adding is a multiplication; removing is a division, and getting that backwards is the mistake that trips people up.
At the UK standard rate of 20%, a £100 net price becomes a £120 gross price with £20 of VAT. Run it the other way and a £120 gross price contains £100 of net and £20 of VAT. The VAT amount is the same £20, but you reach it by different routes.
Why you divide to remove VAT
To remove VAT from a VAT-inclusive price, you divide the gross by one plus the rate, because the VAT was added to the smaller net figure, not the gross. Subtracting the rate instead gives the wrong answer.
Take £120 at 20%. The right method is £120 divided by 1.20, which is £100. The tempting shortcut, multiplying £120 by 0.80, gives £96, understating the net by £4 and the VAT by more. The gap exists because 20% of £100 is £20, but 20% of £120 is £24, and only the first is the VAT that was actually charged. This calculator shows the wrong figure next to the right one so the error is impossible to miss.
| £120 gross at 20% VAT | Result |
|---|---|
| Net (divide by 1.20) | £100 |
| VAT | £20 |
| Wrong method (times 0.80) | £96 |
| Error | £4 |
Net, gross, and who sees which
Net is the price before VAT, gross is the price after, and the VAT amount is the difference. Which one you deal with depends on whether you are the shopper or the business.
Prices on a shelf are gross, VAT already baked in, which is why extracting the tax from a receipt total is the reverse calculation. A business invoice usually shows the net price with VAT listed separately, so a firm reclaiming VAT works from the net. The same £120 is a consumer's total and a bookkeeper's £100 plus £20, and the tool converts cleanly between the two views.
Where the numbers come from
To add VAT, multiply the net by one plus the rate as a decimal, so 20% means times 1.20. The VAT alone is the net times the rate. To remove VAT, divide the gross by one plus the rate to recover the net, then subtract to find the VAT. The rate is an input because it varies: the UK standard rate is 20%, but standard rates run roughly 15% to 25% across Europe, and many countries apply reduced rates to essentials.
Everything here uses a single rate on the whole amount, which covers the common case of one product at one rate.
What this does not cover
This is the VAT arithmetic, not VAT accounting. It does not handle a mix of rates on one invoice, zero-rated or exempt items, the VAT you can and cannot reclaim as a business, the flat-rate scheme, or the rules for cross-border and digital sales, all of which turn on tax law rather than math. VAT registration thresholds and filing are a matter for the tax authority.
None of this is advice on your VAT position. It shows how the tax is added and removed from a price. For anything touching a return or your registration, an accountant or the tax authority is the right call.
Frequently asked questions
How do I add VAT to a price? To add VAT, multiply the net price by one plus the rate. At the UK standard 20% rate, a net price of £100 becomes £100 times 1.20, which is a £120 gross price with £20 of VAT. The VAT amount alone is the net times the rate, £100 times 0.20.
How do I remove VAT from a price? To remove VAT from a VAT-inclusive price, divide the gross by one plus the rate, not by subtracting the rate. A £120 gross at 20% is £120 divided by 1.20, which is £100 net, with £20 of VAT. Dividing is essential, because the VAT was added to the smaller net figure, not the gross.
Why can I not just subtract the VAT rate? Because the VAT was calculated on the net price, so removing it means undoing a multiplication, which is a division. Multiplying a £120 gross by 0.80 gives £96, understating the net by £4 and the VAT by more. The right method, dividing by 1.20, returns the true £100 net. This calculator shows the gap so the mistake is obvious.
What is the difference between net and gross with VAT? Net is the price before VAT and gross is the price after, with the VAT amount being the difference. On a £100 net at 20%, the gross is £120 and the VAT is £20. Prices shown to consumers are usually gross, while business invoices often quote net plus VAT separately, which is why converting between them comes up so often.
What is the standard VAT rate? The UK standard VAT rate is 20%, and standard rates across Europe generally run between 15% and 25%. Many countries also apply reduced rates to specific goods like food, books, or energy. This tool takes the rate as an input, so it works for any country and any reduced rate you enter.