How to remove VAT from a price

The short answer: to remove 20% VAT, divide the price by 1.2. £120 ÷ 1.2 = £100. The VAT itself is one-sixth of the VAT-inclusive price, so £120 ÷ 6 = £20. Don't take 20% off; that gives the wrong answer. For 5% VAT, divide by 1.05.

The formulas

Worked examples at 20%

Why taking off 20% is wrong

VAT is added as 20% of the net price. So a £100 item becomes £120. If you take 20% off £120, you take off £24, not £20, and get £96. The VAT is 20 parts out of 120, which is one-sixth, or 16.67% of the gross price.

The same logic applies to any rate: the VAT fraction of a gross price is rate ÷ (100 + rate). At 5%, it is 5/105, or one twenty-first.

Doing it on a phone calculator

1. Type the VAT-inclusive price, for example 99.99.
2. Divide by 1.2: you get 83.325, so the net price is £83.33 (rounded).
3. Subtract that from the original for the VAT: £16.66.

On invoices, round VAT to the nearest penny. HMRC allows rounding each line or the invoice total, as long as you are consistent.

Removing 5% VAT

Reading VAT on receipts and invoices

• Shop receipts usually show prices including VAT, with a VAT summary at the bottom. If a receipt marks some items with a letter, check the key: zero-rated items such as most food are often marked separately.
• Business invoices must show the net amount, the VAT rate, the VAT amount and the seller's VAT number. Quotes between businesses are often "plus VAT", so £1,000 + VAT means £1,200 to pay.
• Mixed baskets: if a bill has items at different rates, you can't remove VAT from the total in one step. Work out each rate's share separately, or use the VAT breakdown on the receipt.
• Simplified invoices for sales under £250.00 including VAT can show just the total and rate, so you'll need the divide-by-six method to find the VAT.

Removing VAT in a spreadsheet

With the VAT-inclusive price in cell A2:

• Net price: =A2/1.2
• VAT: =A2-A2/1.2, or =A2/6
• Rounded to the penny: =ROUND(A2/1.2,2)
• Any rate in B2 (for example 5): =A2/(1+B2/100)

Round once at the end rather than at each step, or small penny differences can build up across a long list.

Reclaiming VAT if you're a business

VAT-registered businesses reclaim the VAT on most business purchases in their VAT return, using the VAT figure on a valid invoice, not one you have worked out yourself. You can't reclaim VAT on business entertaining, most cars, or anything for personal use, and you need to apportion items used for both. If you use the Flat Rate Scheme, you generally don't reclaim VAT on purchases at all.

Common mistakes

• Taking 20% off instead of dividing by 1.2, which understates the net price by £4 on every £120.
• Removing VAT from zero-rated or exempt items that never had any VAT in them.
• Assuming a seller is VAT-registered. Many small businesses aren't, so their prices contain no VAT at all and there is nothing to reclaim.
• Using the old 17.5% rate. The standard rate has been 20% since January 2011.

Which rate applies?

• 20% standard rate: most goods and services.
• 5% reduced rate: children's car seats, some energy-saving materials and domestic fuel.
• 0% zero rate: most food, children's clothes, books and newspapers.
• Exempt: such as insurance, most financial services and some education and health services. No VAT is charged.

Household energy has its own rules and recent changes, so check the specific item, and your bill, if you are unsure.

For businesses

If you are VAT-registered, you usually reclaim the VAT on business purchases, so the net price is your real cost. If you are not registered, the gross price is your cost. Quotes to businesses are often shown without VAT; quotes to consumers must include it. See when to register for VAT and the VAT Flat Rate Scheme.

For other percentage sums, see how to calculate a percentage increase and how to work out 20% off.