How to Work Out VAT: A Plain-English Guide
Tax guide · Updated June 2026
VAT (Value Added Tax) is a tax added to most things you buy in the UK and across the EU. Working it out comes down to two jobs: adding VAT to a price that does not include it yet, and removing VAT from a price that already does. Both are simple once you know the trick — and there is one mistake almost everyone makes when removing it, which this guide will help you avoid. If you just want the number now, the VAT calculator does both directions instantly; read on to understand the method.
The two numbers: net and gross
Every VAT calculation involves two prices. The net price (also called "ex-VAT") is the amount before VAT is added. The gross price (or "inc-VAT") is the total you actually pay, including the VAT. The VAT itself is simply the difference between them. Shops in the UK must show gross prices to consumers, while business-to-business invoices often show the net price with VAT listed separately.
UK VAT rates
There are three rates, plus an exempt category:
- Standard rate — 20%. Most goods and services.
- Reduced rate — 5%. Domestic energy, children's car seats, some home-energy work.
- Zero rate — 0%. Most food, children's clothing, books, newspapers, and most public transport.
- Exempt. Financial services, insurance, education, and healthcare are outside VAT entirely.
Zero-rated and exempt sound similar but are different in the paperwork: zero-rated items are still "taxable" at 0%, while exempt items are not in the VAT system at all. For everyday maths, both mean no VAT is added.
How to add VAT to a price
To add VAT, multiply the net price by 1 plus the rate as a decimal. For the standard 20% rate, that means multiplying by 1.2.
Example. A product has a net price of £50.
- VAT: £50 × 0.20 = £10
- Gross price: £50 × 1.20 = £60
For the 5% reduced rate, multiply by 1.05 instead (a £50 net price becomes £52.50). Adding VAT is just a percentage increase — the same maths as the percentage increase calculator.
How to remove VAT (and the mistake to avoid)
This is where most people slip up. To find the net price from a gross price, you divide by 1.2 — you do not subtract 20%.
Example. A gross price is £60.
- Net: £60 ÷ 1.20 = £50
- VAT: £60 − £50 = £10
The common mistake: subtracting 20% from the gross price. On a £60 gross price that gives £48 — but the correct net price is £50. The 20% was added to the smaller net figure, so taking 20% off the larger gross figure removes too much. Always divide by 1.2 to go backwards.
Quick reference
| Net | VAT (20%) | Gross |
|---|---|---|
| £100.00 | £20.00 | £120.00 |
| £250.00 | £50.00 | £300.00 |
| £500.00 | £100.00 | £600.00 |
| £1000.00 | £200.00 | £1200.00 |
VAT vs. sales tax
If you are used to US prices, VAT can feel unfamiliar. Sales tax is added once, at the checkout, and is shown on top of the ticket price. VAT is collected at every stage of production, and the price on the shelf already includes it. The arithmetic of adding the rate is identical, so for a one-off calculation you can use the sales tax calculator the same way — the difference is who collects the tax and when.
Do it instantly
Once you understand the method, you rarely need to do it by hand. The VAT calculator adds or removes VAT at 20%, 5%, or any custom rate and shows the net, gross, and VAT amount together. To find what one figure is as a percentage of another — useful for checking an invoice — the X is what percent of Y calculator comes in handy.
Frequently asked questions
How do I add 20% VAT to a price?
Multiply the net price by 1.2. A £50 net price becomes £50 × 1.2 = £60 gross, of which £10 is VAT. For the 5% reduced rate, multiply by 1.05 instead.
How do I remove VAT from a gross price?
Divide the gross price by 1.2 (for 20% VAT). £60 ÷ 1.2 = £50 net, so the VAT was £10. Do not subtract 20% — that gives the wrong answer.
Why can't I just subtract 20% to remove VAT?
Because the 20% was added to the smaller net figure, not the larger gross figure. Subtracting 20% of the gross removes too much. On a £60 gross price, subtracting 20% gives £48, but the correct net price is £50. Always divide by 1.2.
What are the current UK VAT rates?
The standard rate is 20% and applies to most goods and services. The reduced rate of 5% covers things like domestic energy and children's car seats. The zero rate (0%) applies to most food, children's clothing, and books. Some items, such as financial services and education, are exempt entirely.
Is VAT the same as sales tax?
No. Sales tax is added once, at the final sale to the customer. VAT is collected at every stage of the supply chain, with businesses reclaiming the VAT they pay on purchases. The everyday arithmetic of adding the rate is the same, but the systems differ.