How to remove VAT from a price (and the mistake almost everyone makes)
You've got a receipt for £120 including VAT and need the net figure for your accounts. The obvious move is to take 20% off. But that gives you £96, and the right answer is £100. Here's why, and how to do it properly.
Why taking 20% off is wrong
VAT at 20% is calculated on the price before VAT. So a £100 item has £20 VAT added, making £120. When you take 20% off £120, you're taking 20% of the bigger number, which is £24. That's too much.
The right way: divide
To remove 20% VAT, divide the gross price by 1.2. £120 ÷ 1.2 = £100. The VAT is the difference: £20.
A handy shortcut: the VAT inside any price that includes 20% VAT is one-sixth of the total. £120 ÷ 6 = £20.
Adding VAT
To add 20% VAT, multiply the net price by 1.2. £250 × 1.2 = £300.
The 5% reduced rate
The same logic works for any rate. To add 5% VAT, multiply by 1.05. To remove it, divide by 1.05. So £105 including 5% VAT is £100 net plus £5 VAT.
Quick reference
| Task | 20% rate | 5% rate |
|---|---|---|
| Add VAT | × 1.2 | × 1.05 |
| Remove VAT | ÷ 1.2 | ÷ 1.05 |
| VAT inside a gross price | ÷ 6 | ÷ 21 |
Or skip the maths and use our VAT calculator, which shows the net, VAT and gross figures at once.
The same trap catches people with discounts. If a price went up 25% and then comes down 25%, you don't end up where you started. Our percentage calculator handles percentage change correctly.