How to calculate VAT: add it, remove it, and avoid the classic mistake

The three VAT rates in the UK

GOV.UK lists three rates for goods and services:

The standard rate has been 20% since 4 January 2011, when it went up from 17.5%. Some things are exempt from VAT altogether, such as postage stamps and financial and property transactions. "Zero-rated" and "exempt" are not the same: zero-rated items are still VAT-taxable supplies at 0%, which matters to businesses reclaiming VAT. Rates elsewhere differ by country and sometimes change, so check the current rate for your case before relying on a result.

Adding VAT to a net price

Start from the net price (excluding VAT). Multiply by "1 + the rate":

Gross = net × (1 + rate)    and    VAT = net × rate

• 200 net at 20%: VAT = 40; gross = 200 × 1.20 = 240.
• 100 net at 5%: VAT = 5; gross = 100 × 1.05 = 105.
• 100 net at 0%: VAT = 0; gross = 100.

Taking VAT out of a gross price

This is the classic mistake: subtracting the percentage from the gross price. If something costs 120 including 20% VAT and you take 20% off 120, you get 96, which is wrong. VAT is a percentage of the net price, not of the gross one, so you have to divide:

Net = gross ÷ (1 + rate)    and    VAT = gross − net

• 120 gross at 20%: net = 120 ÷ 1.20 = 100; the VAT included is 20 (not 24).
• 59.90 gross at 20%: net = 59.90 ÷ 1.20 = 49.92 (rounded); VAT = 9.98.
• 105 gross at 5%: net = 105 ÷ 1.05 = 100; VAT = 5.

To check, recalculate: net × (1 + rate) should give you the gross back.

Shortcuts that work

• At 20%: multiply by 1.2 to add, divide by 1.2 to remove. The VAT inside a gross price is one sixth of it (20 out of 120).
• At 5%: multiply or divide by 1.05.
• In a spreadsheet: with the gross in A1, the net is =A1/1.2 and the VAT =A1-A1/1.2; with the net in A1, the gross is =A1*1.2.

The VAT calculator does both directions and shows net, VAT and gross together, with the rate you choose (you can type any rate, with decimals, for other countries).

Rounding: why you are sometimes a penny out

Amounts are rounded to two decimals, and that can create small differences depending on where you round. At 5%, three lines of 0.50 net each carry 0.025 of VAT, which rounds to 0.03, so the three lines add up to 0.09. But the VAT calculated on the total (1.50) is 0.075, which rounds to 0.08. A one-penny difference that is a matter of method, not an error. On invoices, follow your invoicing software's rule and keep to it throughout the document.

Discounts and percentages: do not add or subtract them from each other

Percentages multiply. Applying a 20% discount before or after VAT gives the same total: 100 × 0.80 × 1.20 = 100 × 1.20 × 0.80 = 96. What does not work is cancelling one percentage with another: taking off 20% and adding 20% VAT does not give back the original (100 × 0.80 × 1.20 = 96, not 100). For percentages in general there is the percentage calculator, and for sales the discount calculator.

A worked example: pricing a product

Say you sell a product for which you want to take home 50 after VAT, and VAT is 20%. The shelf price is 50 × 1.20 = 60, of which 10 goes to the tax authority. If you instead wanted the shelf price to be a round 60 and asked what that leaves you, you would divide: 60 ÷ 1.20 = 50. Notice that the VAT amount (10) is 20% of 50, not of 60, which is the same net-versus-gross point as before. If you are quoting prices to consumers, they usually expect to see the gross price; to businesses, the net price. Always state which one you mean.

What this guide does not cover

• Exempt supplies and special schemes (flat rate, margin schemes, reverse charge).
• Whether you must register for VAT, which depends on turnover and activity.
• Sales tax in the United States, which is a different system: it is set by states and localities and added at the point of sale. The same net-to-gross arithmetic applies, using the local rate.

These cases depend on your situation: confirm them on the official site (for the UK, GOV.UK) or with an accountant. Calculators are an arithmetic aid, not tax advice.

Sources and further reading

• GOV.UK: VAT rates

Figures checked on 3 October 2026.