Understanding VAT calculations
VAT calculations are useful when converting between prices excluding VAT and prices including VAT. This calculator lets you use a custom rate so it can handle standard, reduced or zero-rate examples where appropriate.
Formula
To add VAT: net × (1 + rate). To remove VAT: gross ÷ (1 + rate). VAT amount = gross − net.
Example
At a 20% rate, £100 excluding VAT becomes £120 including VAT. Removing 20% VAT from £120 gives £100, not £96.
Common mistakes to avoid
- Subtracting 20% from a VAT-inclusive price instead of dividing by 1.20.
- Assuming every product or service uses the same VAT treatment.
- Treating a calculator as a substitute for checking the current HMRC rules that apply to your business.
ProfitMaths provides general calculation tools and educational information. Results are estimates and are not accounting, tax, legal or financial advice.