How to Calculate VAT (Add or Remove Tax From Any Price)
To add VAT to a price, multiply the net amount by the VAT rate and divide by 100, then add that figure to the net amount to get the gross price. To remove VAT from a price that already includes it, divide the gross amount by (1 + rate / 100) to get the net figure, then subtract that from the gross to find the tax. Same two numbers both times, just worked in opposite directions.
The two formulas
Adding VAT to a net price:
VAT = Net price × (Rate / 100)
Gross price = Net price + VATRemoving VAT from a gross price:
Net price = Gross price / (1 + Rate / 100)
VAT = Gross price − Net priceThe second formula trips people up because it isn’t just “gross price minus the rate percent”. A £120 price at 20% VAT does not have £24 of tax in it (120 × 0.20). It has £20, because the £120 already includes the tax, so the rate applies to the £100 net figure hidden inside it, not to the £120 total.
Worked example: quoting a client
Say you’re a freelancer quoting three lines of work at the UK’s 20% standard rate, before VAT:
| Line item | Net price | VAT (20%) | Gross price |
|---|---|---|---|
| Design (10 hrs) | £600.00 | £120.00 | £720.00 |
| Copywriting | £250.00 | £50.00 | £300.00 |
| Hosting setup | £80.00 | £16.00 | £96.00 |
| Total | £930.00 | £186.00 | £1,116.00 |
The client sees £1,116.00 on the invoice. £186.00 of that goes to HMRC, and £930.00 is what you actually earned for the work.
Not every rate is the same
The UK runs three VAT rates, and mixing them up on an invoice is one of the most common bookkeeping errors:
| Rate | Applies to | Example |
|---|---|---|
| 20% (standard) | Most goods and services | Electronics, professional services, alcohol |
| 5% (reduced) | A short list of specific goods | Home energy, children’s car seats |
| 0% (zero-rated) | Still VAT-taxable, but at 0% | Most food, books, children’s clothes |
Zero-rated is not the same as VAT-exempt. A zero-rated sale still counts toward your VAT taxable turnover and still gets reported on your VAT return, it just has no tax added. Exempt sales (insurance, some education, postage stamps) sit outside the VAT system altogether. The distinction matters if you’re close to the VAT registration threshold, since only taxable turnover, including the zero-rated portion, counts toward it.
Pulling VAT out of a receipt
The reverse calculation comes up constantly in bookkeeping: you have a card receipt for a total amount and need to know how much of it was tax, for expense claims or quarterly returns.
A supplier receipt shows £96.00 for hosting, VAT included, at the standard rate. To find the net cost and the tax:
Net = £96.00 / 1.20 = £80.00
VAT = £96.00 − £80.00 = £16.00That matches the hosting line from the invoice example above, run backwards. The £96.00 never gets multiplied by 20% directly, that mistake overstates the tax by exactly the VAT rate applied to the wrong base.
Calculate it with your own numbers
Switch between adding and removing VAT below, type in any price and rate, and read off the net, tax, and gross figures as you go.
Common mistakes
Multiplying the gross price by the rate to find the tax. As shown above, this overstates the VAT because the rate belongs to the net figure, not the total. Always divide by (1 + rate/100) first when working backward from a gross amount.
Applying VAT to a price that’s already zero-rated or exempt. Check which rate actually applies before running either formula. Adding 20% to a children’s book or a bag of pasta is a common invoicing slip that inflates the customer’s total for no reason.
Forgetting VAT stacks with, not instead of, other charges. Delivery fees, service charges, and card surcharges are usually also subject to VAT unless specifically exempted, so they need to go into the net figure before the tax is calculated, not added on top of the final gross price.
Rounding too early. Round only the final displayed figures, not the intermediate net or VAT amounts, especially on invoices with several line items. Rounding each line separately and then summing can land a few pence away from rounding the total once at the end.
Frequently asked questions
How do I add VAT to a price? Multiply the net price by the VAT rate as a percentage, then add that amount to the net price. A £200 net price at 20% VAT adds £40, for a £240 gross total.
How do I work out VAT from a total that already includes it? Divide the gross price by (1 + rate/100) to get the net price, then subtract the net from the gross to find the VAT. A £240 gross price at 20% VAT breaks down into £200 net and £40 tax, not £48 (which is what you’d wrongly get by multiplying £240 by 20%).
What’s the difference between zero-rated and VAT-exempt? Zero-rated goods are taxable at 0%, so they still count toward your VAT taxable turnover and appear on your VAT return. Exempt goods and services sit outside the VAT system entirely and don’t count toward the registration threshold.
Does VAT apply to delivery and service charges? Usually yes, at the same rate as the goods or service they relate to, unless the item itself is zero-rated or exempt. Add these charges to the net price before calculating VAT, rather than adding VAT only to the product price and leaving the delivery fee untaxed.