How to Calculate VAT

Calculating VAT is fairly simple once you know what kind of price you are starting with. The calculation is different when VAT needs to be added to a price and when the price already includes VAT.

If you have a price before VAT, multiply it by the VAT rate to work out the tax. Then add the VAT to the original price. For example, on a £100 price with 20% VAT, the VAT is £20, giving you a total of £120.

If the price already includes VAT, you need to work backwards. Divide the gross amount by 1 plus the VAT rate as a decimal to find the price before VAT. You can then subtract that amount from the gross price to find the VAT included.

This guide covers both calculations with formulas and examples, along with different VAT rates, decimal amounts, rounding, and common mistakes.

VAT Calculation Formula

The formula you use depends on whether your starting price is before VAT or already includes it.

For a VAT-exclusive price, multiply the net amount by the VAT rate as a decimal. Then add the VAT to the net amount to get the gross price.

VAT amount = Net price × (VAT rate ÷ 100)

Gross price = Net price + VAT amount

For example, if the net price is £250 and the VAT rate is 20%, the VAT is £50. Add £50 to £250 and the gross price is £300.

If you already have a VAT-inclusive gross price, use the reverse calculation:

Net price = Gross price ÷ (1 + VAT rate ÷ 100)

VAT amount = Gross price − Net price

Check whether your starting figure is net or gross before choosing a formula. Using the add-VAT formula on a gross amount will give you the wrong result, just as using the reverse formula on a net amount will.

How to Calculate VAT on a Standard Calculator

You can work out a basic VAT calculation with a normal calculator. You only need the starting price and the VAT rate, but you need to know whether the price is before or after VAT.

  • Divide the VAT rate by 100 to turn it into a decimal.
  • Multiply the net price by the decimal to find the VAT amount.
  • Add the VAT to the net price to get the gross price.
  • If VAT is already included, divide the gross amount by 1 plus the VAT rate as a decimal.
  • Subtract the net price from the gross amount to find the VAT included.

For example, to add 20% VAT to £150, calculate:

£150 × 0.20 = £30 VAT

Then:

£150 + £30 = £180 gross price

If £180 already includes 20% VAT, the calculation is different:

£180 ÷ 1.20 = £150 net price

£180 − £150 = £30 VAT

Both calculations use the same 20% rate, but they start from different types of prices. Check the starting figure first so you do not use the wrong formula.

Calculating the VAT Amount When Two Values Are Known

If you already know two of the three figures — net price, VAT, and gross price — you can use them to find the missing amount. This can be useful when checking an invoice or working from figures you already have.

Known ValuesFormulaExample
Net price + VAT rateVAT = Net × Rate ÷ 100£200 × 20% = £40 VAT
Net price + Gross priceVAT = Gross − Net£240 − £200 = £40 VAT
Gross price + Net priceVAT = Gross − Net£300 − £250 = £50 VAT
Gross price + VAT rateVAT = Gross − (Gross ÷ (1 + Rate ÷ 100))£120 at 20% = £20 VAT

The first three methods are quick when you already know the VAT rate or both prices. If you only know the gross price and VAT rate, find the net price first.

For example, if the gross price is £120 and the VAT rate is 20%:

£120 ÷ 1.20 = £100 net price

£120 − £100 = £20 VAT

Keeping the net price, VAT amount, and gross price separate makes it easier to check whether the figures match.

VAT Rounding and Decimal Precision

VAT calculations do not always produce a neat amount of pounds and pence. This can happen when the starting price includes pence or when the calculation produces more than two decimal places.

For example, 20% VAT on £86.87 is:

£86.87 × 0.20 = £17.374

Rounded to two decimal places, the VAT is £17.37. Adding £86.87 and £17.37 gives a displayed total of £104.24.

When several items are calculated separately, you may see a small difference between the VAT on each item and the VAT calculated from the combined total. This can happen because each amount may be rounded at a different stage.

When checking an invoice, use the figures shown on the actual document. The final penny can depend on the rounding method and when rounding was applied during the calculation.

FAQs

Dividing a percentage by 100 changes it into a decimal that can be used in a calculation. For example, 20% becomes 0.20 and 5% becomes 0.05.

So, if a £200 price has 20% VAT:

£200 × (20 ÷ 100) = £40 VAT

You can check the result by working through the calculation in the opposite direction.

If you started with a net price, calculate the VAT and add it to the net amount. The result should be the original gross price.

If you started with a gross price, divide it by 1 plus the VAT rate as a decimal to find the net price. Then subtract the net price from the gross amount to check the VAT.

For a partial refund, calculate the VAT connected to the amount being refunded rather than reversing the whole original transaction.

The refund should follow the same VAT treatment as the original sale. For example, if part of a purchase charged at 20% VAT is refunded, the related net amount and 20% VAT should be reduced as well.

If a discount reduces the price before VAT is calculated, calculate VAT on the discounted amount.

For example, a £500 net price with a £50 discount leaves £450 subject to VAT. At 20% VAT:

£450 × 0.20 = £90 VAT

The total after VAT is:

£450 + £90 = £540

Yes. Negative amounts can be used to show a reduction to an earlier transaction, such as on a credit note.

The negative net amount, VAT amount, and gross amount should reflect the VAT treatment of the original transaction. The exact accounting treatment depends on the document and the transaction involved.

Only add VAT if the rebuilding cost figure is meant to include VAT.

If the figure is given before VAT, add the applicable VAT rate to calculate the VAT-inclusive amount. If VAT is already included, adding it again would overstate the total.

Check whether the source figure is VAT-inclusive or VAT-exclusive before doing the calculation.

Final Thoughts

Calculating VAT comes down to knowing which figure you are starting with. If you have a price before VAT, multiply it by the VAT rate to find the tax and then add it to the net amount. If VAT is already included, divide the gross price by 1 plus the VAT rate as a decimal to work backwards.

You can use the same method with different VAT rates, as long as the rate matches the transaction. Decimal amounts may also need rounding when you are working with prices or checking invoice figures to the nearest penny.

For simple calculations, a standard calculator is usually enough. If you need to check VAT figures regularly, a VAT calculator can make the process quicker.

Before accepting a VAT figure, have you checked whether your starting price is net or already includes VAT?