A receipt shows 120 at a 20% VAT rate. How much of that is tax? Most people say 24, but the right answer is 20. Adding VAT and removing it use two different steps, and mixing them up is the most common VAT error there is.
To add VAT, multiply the price before tax by 1 plus the rate, so 100 at 20% becomes 120. To remove VAT, divide the price with tax by 1 plus the rate, so 120 divided by 1.2 gives back 100. Never multiply the total by the rate, because the total already includes the tax.
What Do Net, Gross and VAT Mean?
VAT, or value added tax, is a tax added to most goods and services sold by registered businesses. The net price is the amount before VAT. The gross price is the amount after VAT, which is what the buyer pays.
Every VAT sum links these three numbers. Net plus VAT always equals gross. Once you know any two of them, you can find the third one.
The hard part is knowing which number you start with. A supplier quote to another business often shows the net price. A price tag in a shop usually shows the gross price, with the tax already inside it.
So the first question is always simple. Does this amount include VAT or not? Your answer decides whether you multiply or divide.
Multiply to Add, Divide to Remove
Both directions use one number called the multiplier. The multiplier is 1 plus the rate written as a decimal. At 20%, the multiplier is 1.2, and at 5% it is 1.05.
- Add VAT: gross = net x (1 + rate). The VAT is gross minus net.
- Remove VAT: net = gross / (1 + rate). The VAT is gross minus net.
These match the method on the official UK guide for charging VAT. It multiplies the price without VAT by 1.2 and divides the price with VAT by 1.2.
There is also a shortcut for finding just the tax inside a gross price. The UK tax office calls it the VAT fraction: the rate divided by 100 plus the rate. At 20%, that is 20/120, or one sixth.
| VAT rate | Add: multiply net by | Remove: divide gross by | VAT fraction of gross | 100 net becomes |
|---|---|---|---|---|
| 5% | 1.05 | 1.05 | 1/21 | 105 |
| 15% | 1.15 | 1.15 | 3/23 | 115 |
| 20% | 1.20 | 1.20 | 1/6 | 120 |
| 25% | 1.25 | 1.25 | 1/5 | 125 |
Notice that the multiplier is the same number in both directions. Only the operation flips, from times to divide.
Pricing a Chair and Checking a Receipt
Start with the example on our VAT calculator page. A net price of 100 at 20% gives 100 x 0.2 = 20 of VAT, for a gross price of 120. Going back, 120 / 1.2 = 100 net, so the tax is still 20.
The same page runs 250 net at a 5% rate. The VAT is 12.50, and the gross price is 262.50.
Adding VAT to a Sale Price
The UK guide uses a chair priced at 60 pounds before tax. Multiply 60 by 1.2 to get 72 pounds. The customer pays 72, and 12 of that is VAT.
Taking VAT Out of a Purchase
Now say a business buys a table for 180 pounds, VAT included. Divide 180 by 1.2 to get 150 pounds net. The VAT is 180 minus 150, or 30 pounds.
The same guide shows the 5% rate on a stairlift that cost 483 pounds with VAT. Divide 483 by 1.05 to get 460, so the VAT is 23 pounds.
Checking With the VAT Fraction
The fraction gives a quick second check. One sixth of 180 is 30, and one twenty-first of 483 is 23. Both match the answers above.
The VAT Calculator adds or removes VAT at any rate. It shows the VAT, the net price and the gross price together, so all three always agree.
How Does VAT Move Through a Supply Chain?
Each registered business charges VAT on its sales and pays VAT on its purchases. It then sends the tax office the difference. The final customer ends up carrying the full tax.
The UK tax office uses two names here. Output tax is the VAT due on your sales. Input tax is the VAT you are charged on business purchases and expenses.
Picture a shop that buys stock for 100 net plus 20 of VAT. It sells the stock for 150 net plus 30 of VAT. The shop owes 30 minus 20, so it pays 10.
Now add the supplier, assuming it paid no VAT on its own costs. The supplier paid in 20, and the shop paid in 10. Together that is 30, the exact VAT the customer paid.
US sales tax works differently. It has no national rate, and each state and city sets its own. Our guide to how sales tax rates differ by state covers that system.
Why Is 20% VAT Only One Sixth of the Total?
The 20% applies to the net price, not the total. Inside a gross price, the tax is 20 parts out of 120, which is one sixth. That is why 20% of the gross always overstates the tax.
The UK tax guide gives a small example. An item sells for 2.40 pounds at 20%, and the VAT is 40 pence. That is one sixth of 2.40, not 20% of it.
Four Slips That Cost Money
- Multiplying the gross by the rate. 120 x 0.2 gives 24, which is 4 too much. Divide by 1.2 first.
- Taking 20% off the gross. 120 minus 20% is 96, not 100. Adding 20% and then taking 20% off never lands where you began.
- Treating a gross price as net. Adding 20% to a price that already holds VAT charges the tax twice.
- Rounding each step. Keep full figures until the end, then round the final VAT.
The second slip is a general percentage trap, not just a VAT one. Our explainer on percentage change and why the base matters shows why a rise and a fall of the same percent do not cancel.
Rounding has its own rules. The UK VAT guide lets invoice traders round the total VAT on an invoice down to a whole penny. Retailers follow a separate rule, so check the guide for your case.
Which VAT Rate Belongs on Your Price?
The rate depends on the country and on what you sell. In the UK, most goods and services use the 20% standard rate. Some items take a 5% reduced rate, and others take a 0% zero rate.
The UK lists home energy and children’s car seats at 5%. Most food and children’s clothes are zero-rated. The standard rate rose to 20% on 4 January 2011, up from 17.5%.
Zero-rated and exempt sound alike, but they differ. A zero-rated sale is still taxable, just at 0%. An exempt sale, such as postage stamps or many financial deals, has no VAT at all. Exempt sellers usually cannot reclaim the VAT on their own costs.
The European Union sets a framework for its members. Each country picks its own rates, but the standard rate must be at least 15%. Reduced rates can go as low as 5% for listed goods and services.
Rates also change over time, so check the official rate for the date of the sale. Then run the numbers through our add or remove VAT tool to get the net, VAT and gross in one step.
Common Questions About VAT
How Do You Add 20% VAT to a Price?
Multiply the net price by 1.2. A 60 pound price becomes 72 pounds, and the VAT is the 12 pound difference. At the 5% rate, multiply by 1.05 instead.
How Do You Take VAT Out of a Price That Already Includes It?
Divide the gross price by 1 plus the rate. At 20%, 180 divided by 1.2 gives 150 net, so the VAT is 30. At 5%, divide by 1.05 instead.
Why Is the VAT Not 20% of the Total Price?
The 20% rate applies to the net price, and the total already contains the tax. So the VAT is 20/120 of the total, or one sixth. On a 120 total, that is 20, not 24.
Is VAT the Same as US Sales Tax?
No. Both are taxes on spending, but VAT is charged at each business stage, and each business pays only the difference. US sales tax has no national rate, and states and cities set their own rates.
What Is the Difference Between Zero-Rated and Exempt?
A zero-rated sale is taxable at 0%, and the seller can usually reclaim VAT on its costs. An exempt sale has no VAT, and the seller usually cannot reclaim VAT on related costs.
Can a Business Get Back the VAT It Pays?
A VAT-registered business usually can. It subtracts the VAT it paid on business purchases from the VAT it charged customers. It pays the difference, or gets a refund when it paid more than it charged.
References
References Used in This Article
This article explains VAT arithmetic for general education and is not tax advice. Rates and rules shown are UK and EU figures as published on the official pages above. Reviewed for accuracy by Prof. Dr. Khalil Mudassar, PhD. Last updated September 27, 2026.
Author
Shakeel Muzaffar is the Founder and Editor-in-Chief of MultiCalculators.com, bringing over 15 years of experience in digital publishing, product strategy, and online tool development. He leads the platform's editorial vision, ensuring every calculator meets strict standards for accuracy, usability, and real-world value. Shakeel personally oversees content quality, formula verification workflows, and the platform's commitment to publishing tools that are genuinely useful for students, professionals, and everyday users worldwide.




