VAT calculations are simple in theory, but it's easy to get confused about which direction you're calculating. This guide gives you everything you need — with worked examples for every scenario.

UK VAT rates

Before calculating, you need to know which VAT rate applies. The UK has three main rates:

Standard rate: 20% — applies to most goods and services
Reduced rate: 5% — applies to certain goods such as domestic fuel, children's car seats, and some energy-saving materials
Zero rate: 0% — applies to most food, children's clothing, books, and printed materials. Zero-rated is different from exempt — zero-rated businesses can still reclaim input VAT.

How to add VAT to a price (the simple formula)

When you have a net price (excluding VAT) and want to find the gross price (including VAT):

At 20% standard rate:

Gross = Net × 1.20

Example: Net price = £100

Gross = £100 × 1.20 = £120

VAT amount = £120 - £100 = £20

The multiplier 1.20 represents the original 100% (your net price) plus the 20% VAT. This works for any net price:

£50 net → £50 × 1.20 = £60 gross (VAT = £10)
£250 net → £250 × 1.20 = £300 gross (VAT = £50)
£1,750 net → £1,750 × 1.20 = £2,100 gross (VAT = £350)

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How to remove VAT from a price (working backwards)

When you have a gross price (including VAT) and want to find the net price (excluding VAT) and the VAT amount:

At 20% standard rate:

Net = Gross ÷ 1.20

VAT = Gross - Net

Example: Gross price = £120

Net = £120 ÷ 1.20 = £100

VAT = £120 - £100 = £20

Common mistake: Many people calculate 20% of the gross price and subtract it. This is wrong.

❌ Incorrect: £120 × 20% = £24 (this is not the VAT amount)
✅ Correct: £120 ÷ 1.20 = £100 net, so VAT = £20

Why? Because VAT is calculated on the net (exclusive) amount, not the gross (inclusive) amount. 20% of £100 is £20, not 20% of £120 (which would be £24).

Alternatively, you can find the VAT amount directly by dividing the gross by 6:

VAT = Gross ÷ 6
Example: £120 ÷ 6 = £20 ✓

This shortcut works because at 20%, VAT is always 1/6th of the gross price (since 1.20 ÷ 0.20 = 6).

Calculating at the 5% reduced rate

The same logic applies, but with different multipliers:

Adding 5% VAT:

Gross = Net × 1.05

Example: £200 net → £200 × 1.05 = £210 gross

Removing 5% VAT:

Net = Gross ÷ 1.05

Example: £210 gross → £210 ÷ 1.05 = £200 net

Or: VAT = Gross ÷ 21 (at 5%)

Quick mental calculations

Handy shortcuts for common amounts:

To find 20% of any number: divide by 5
To find the VAT in a gross price: divide by 6
To check: the VAT should always be 1/6 of the gross at 20%
For 5% VAT in a gross price: divide by 21

Or, skip the maths entirely and use our free VAT calculator to handle it instantly.

Common VAT calculation mistakes

Taking 20% off the gross to find the net — this is wrong. Always divide by 1.20 to remove VAT.
Applying VAT to exempt supplies — not all sales are subject to VAT. Check whether your supply is standard-rated, reduced-rated, zero-rated, or exempt.
Confusing net and gross on invoices — VAT invoices must show the net amount, VAT amount, and gross amount separately. Getting these wrong causes problems for your customers when they try to reclaim input VAT.
Using the wrong rate — always verify the VAT rate for your specific supply. Some goods and services have surprising classifications (e.g., certain food items, construction work).

Also see our guide on when you need to register for VAT.

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