How do you calculate VAT on a price?
You work out VAT in one of two directions, and the direction depends entirely on what you are starting with. A net price (also called VAT exclusive, "ex. VAT" or "before VAT") needs VAT added to it. A gross price (VAT inclusive, "inc. VAT" or "including VAT") already contains VAT, so the VAT has to be pulled back out of it. Get the direction wrong and the answer is wrong — that is the single most common VAT mistake.
How do you tell which one you have? Check the wording. An invoice or price list that says "£250 + VAT", "ex. VAT" or "before VAT" is a net price. One that says "£300 inc. VAT", "including VAT" or just shows a single total with a VAT line underneath is a gross price. Shop shelf prices in the UK are almost always gross prices — the VAT is already in the total you pay at the till.
| Starting point | What to do | Formula at 20% VAT |
|---|---|---|
| Net price (ex. VAT) | Add VAT to get the gross price | Net price × 1.20 |
| Gross price (inc. VAT) | Extract VAT to get the net price | Gross price ÷ 1.20 (or ÷ 6 for the VAT alone) |
The rest of this guide works through each direction with real numbers, then the shortcuts, the rates and the rules. If you only need one answer right now, the VAT calculator gives it in seconds — or read our VAT calculator guide for the same formulas at every rate.
How to add VAT to a net price
To add VAT, multiply the price before VAT by the VAT rate as a decimal and add the result — or, in one step, multiply by 1.20. Take a net price of £250 at 20%: £250 × 20% = £50 of VAT, so the gross price is £250 + £50 = £300. The one-step version is the same sum: £250 × 1.20 = £300.
| UK VAT rate | Multiply by | VAT on £100 net | Gross price |
|---|---|---|---|
| Standard 20% | 1.20 | £20.00 | £120.00 |
| Reduced 5% | 1.05 | £5.00 | £105.00 |
| Zero 0% | 1.00 | £0.00 | £100.00 |
A bigger example: a business quotes £2,000 net for a job at 20%. The 20% VAT on it is £2,000 × 20% = £400, so the customer pays £2,400 in total. If the same job were charged at the 5% reduced rate, the VAT would be £100 and the total £2,100. Always confirm the rate before you multiply — charging 20% VAT on a 5% supply overcharges your customer, and charging 5% on a standard-rated supply leaves you owing HMRC the difference.
How to work out VAT from a gross price
This is the direction that trips people up, because the tempting shortcut — taking 20% off the total — is wrong. VAT was calculated on the net price, not on the gross total, so 20% of the gross figure is always more than the VAT it contains. The correct method is to divide the total by 1.20 to get the price before VAT, then subtract: the difference is the VAT. That is how to work out VAT from gross prices at any rate. Example: a £1,200 total that includes VAT at the standard rate. £1,200 ÷ 1.20 = £1,000 net, so the VAT is £1,200 − £1,000 = £200.
There is a faster way to get the VAT figure alone: divide the total by 6. £1,200 ÷ 6 = £200 — the same answer, in one step. It works because 20% VAT always makes up exactly one-sixth of a VAT-inclusive price. The same trick at the 5% rate is to divide by 21: an £84 gross total at 5% contains £84 ÷ 21 = £4 of VAT, leaving a net price of £80.
See the size of the common error: 20% of £1,200 is £240, which is £40 more than the £200 of VAT actually inside the price. Anyone who removes VAT by subtracting 20% from a gross total overstates the VAT and understates the net price. Our guide to finding the VAT on any price walks through the same reverse calculation step by step.
The divide-by-6 shortcut — and divide by 21 for 5%
When you only need the VAT figure from a price that already includes tax, the VAT fraction does the job in one division. At the 20% standard rate the VAT fraction is 1/6; at the 5% reduced rate it is 1/21. These are the fractions HMRC itself uses in its VAT guidance, and they never change — they follow directly from the rates.
| Gross price (inc. VAT) | VAT at 20% (÷ 6) | Net price |
|---|---|---|
| £60.00 | £10.00 | £50.00 |
| £120.00 | £20.00 | £100.00 |
| £240.00 | £40.00 | £200.00 |
| £600.00 | £100.00 | £500.00 |
| £1,080.00 | £180.00 | £900.00 |
| £1,200.00 | £200.00 | £1,000.00 |
A worked check from a real till receipt: a television costs £1,080 including VAT. Divide by 6 and the VAT is £180, so the shop keeps £900 as the net sale. At the 5% rate the same idea works with 21: a £210 gas bill that includes 5% VAT contains £210 ÷ 21 = £10 of VAT, so the net charge is £200. If the division does not come out exact, round the VAT to the nearest penny — HMRC accepts rounding to the nearest penny on invoices.
What are the UK VAT rates?
The UK has three VAT rates, plus supplies that sit outside the system altogether. The standard rate has been 20% since 4 January 2011. Picking the right rate matters as much as the maths — the formulas above only give the right answer when the rate is right. The rates below follow HMRC's guide to VAT rates on different goods and services.
| Rate | Applies to | Examples |
|---|---|---|
| Standard 20% | Most goods and services | Electronics, clothes for adults, restaurant meals, professional services |
| Reduced 5% | A limited list set by policy | Domestic fuel and power, children's car seats, mobility aids, some home renovations |
| Zero 0% | Still inside the VAT system | Most food, children's clothing, books and newspapers |
| Exempt | Outside the VAT system entirely | Financial services, insurance, education, health care, postage stamps, betting |
They look the same on a bill — no VAT is charged on either — but they are different in one important way. A sale at the zero rate is still a taxable supply, so the business can reclaim the tax it paid on its costs. Exempt sales sit outside VAT, so the business cannot reclaim the VAT paid on the costs behind them. Our UK VAT guide explains the rates and rules in full, with more worked examples.
How much VAT do I pay HMRC on a VAT return?
For a VAT-registered business, working out VAT does not stop at a single price. On each VAT return you compare two figures: output VAT, the VAT you charged your customers on taxable sales, and input VAT, the VAT you paid on eligible business purchases. What you owe HMRC is output VAT minus reclaimable input VAT (HMRC, VAT guide Notice 700).
Worked example: in one quarter a small business makes £10,000 of standard-rated sales before VAT, so it charges £2,000 of output VAT. In the same quarter it buys £4,000 of standard-rated stock and materials before VAT, so it pays £800 of VAT on them. The VAT due on the return is £2,000 − £800 = £1,200. If the VAT paid is ever bigger than the VAT charged in a period, HMRC owes the business a repayment instead. The key word is reclaimable: a VAT number on a receipt does not automatically mean the VAT can be claimed — the purchase must be for the business and supported by a proper VAT invoice.
Small businesses can also use the Flat Rate Scheme, which replaces this calculation: instead of tracking output and input VAT, the business pays HMRC a fixed percentage of its gross turnover — from 4% to 16.5% depending on the trade, with 16.5% for limited-cost businesses — and generally cannot reclaim VAT on purchases except on certain capital assets. Whether that saves money depends on the trade, so it is worth comparing both methods before choosing.
When do you have to register for VAT?
A UK business must register for VAT when its taxable turnover goes over the VAT registration threshold of £90,000 in a rolling 12-month period, or when it expects to go over it in the next 30 days (HMRC). The threshold rose from £85,000 on 1 April 2024. Below the threshold, registration is voluntary — some small businesses register early so they can reclaim input VAT on their purchases, but registration also means charging VAT on sales and filing returns, so it is a trade-off rather than a free win. Once registered, the business must charge VAT at the right rate, keep VAT records and submit returns, usually every three months.
How to work out VAT on an invoice or receipt
A proper VAT invoice shows three figures: the net amount, the VAT amount and the total. To check one, work the maths backwards from the total. If the total is £600 including 20% VAT, divide by 6: the VAT should be £100 and the net £500. If the invoice shows a different VAT figure, either the rate is not 20% or the invoice is wrong. If the invoice shows a net figure instead, multiply it by 1.20 and compare with the total. Our guide to checking the VAT amount on a bill or invoice covers this check in detail, including what to do when the figures do not add up.
- Step 1 — Read the total. Is it marked inc. VAT or ex. VAT? That decides the direction.
- Step 2 — Find the rate. 20% for most things, 5% for the reduced list, 0% for zero-rated items.
- Step 3 — Run the shortcut. Gross total ÷ 6 for 20% VAT, or ÷ 21 for 5% VAT — that is the VAT that should be on the invoice.
- Step 4 — Compare. If your figure matches the VAT line, the invoice is right. If it does not, ask the supplier to correct it before you pay or reclaim it.
Five common mistakes when you calculate VAT
- Subtracting 20% from a VAT-inclusive total. 20% of £300 is £60, but the VAT inside £300 is only £50. Always divide by 1.20, or use the divide-by-6 shortcut.
- Using the wrong rate. Charging 20% VAT on a 5% supply overcharges the customer; charging 5% on a standard-rated supply leaves you owing HMRC the difference.
- Mixing up net and gross prices. A price quoted "+ VAT" still needs tax added; a shelf price already includes it. Check the wording before you calculate.
- Confusing the zero rate with VAT-free sales. Both charge no VAT, but only sales at the zero rate let the business reclaim the VAT on its costs.
- Forgetting the registration threshold. Once taxable turnover passes the threshold in a rolling 12 months, registration is compulsory — trading on past the threshold without registering can mean backdated VAT and penalties.
Frequently asked questions
How do I work out the VAT on a price?
First check whether the price already includes VAT. If it does not, multiply the net price by 1.20 at 20% — £250 net becomes £300 gross, with £50 of VAT. If the price already includes VAT, divide the gross price by 6 to find the VAT inside it — a £1,200 total contains £200 of VAT.
How do I work out the VAT from a gross price?
Divide the total by 1.20 to get the price before VAT, then subtract — the difference is the VAT. Or use the shortcut: divide the gross price by 6. For example, £1,200 ÷ 6 = £200 of VAT, leaving £1,000 before VAT. Never just subtract 20% from the gross total — 20% of £1,200 is £240, which is £40 more than the VAT it contains.
What is 20% VAT on £100?
£20. A net price of £100 plus VAT at the standard rate is £120 in total. The other way round, a £120 price that already includes 20% VAT contains £20 of VAT (divide £120 by 6) and the net price is £100.
How do I work out 5% VAT?
To add 5% VAT, multiply the net price by 1.05 — £100 net becomes £105 gross, with £5 of VAT. To find 5% VAT inside a gross price, divide the gross price by 21 — an £84 total contains £4 of VAT, leaving a net price of £80. The 5% reduced rate applies to domestic fuel and power, children's car seats, mobility aids and some home renovations.
What is the VAT registration threshold in the UK?
£90,000 of taxable turnover in a rolling 12-month period, or turnover expected to exceed £90,000 in the next 30 days. The threshold rose from £85,000 on 1 April 2024. Below it, registration is voluntary.
What is the difference between zero-rated and exempt VAT?
Both charge no VAT, but a business selling zero-rated goods stays inside the VAT system and can reclaim the VAT it paid on its costs, while a business making exempt sales sits outside the system and cannot reclaim anything. Zero-rated covers most food, children's clothing and books; exempt covers financial services, insurance, education, health care and betting.
The 30-second version
- Add VAT: net price × 1.20 — £250 net becomes £300 gross, with £50 of VAT.
- Remove VAT: gross price ÷ 6 gives the 20% VAT inside it — a £1,200 total contains £200 of VAT.
- At 5%: multiply by 1.05 to add it, or divide the gross price by 21 to find it — £84 gross contains £4 of VAT.
- Rates: 20% standard, 5% reduced, 0% (no VAT charged), plus supplies that sit outside VAT.
- VAT returns: pay HMRC the VAT charged less the reclaimable VAT paid — £2,000 charged less £800 paid means £1,200 due.
- Registration: compulsory once taxable turnover passes the threshold in a rolling 12 months.
Run any figure through the free UK VAT calculator or read the full UK VAT guide.