How to Calculate VAT in the UK

A complete step-by-step guide to calculating UK VAT — adding VAT to a net price, removing VAT from a gross price, and the exact HMRC formulas used.

The Two Types of VAT Calculation

There are two main VAT calculations UK businesses need to perform regularly:

1. Adding VAT — when creating invoices or quoting prices including VAT
2. Removing VAT — when working backwards from a VAT-inclusive price to find the net amount

How to Add VAT to a Price (HMRC Formula)

To add 20% VAT to a net (excluding VAT) price, multiply by 1.20.

How to Remove VAT from a Gross Price (Reverse VAT)

To remove 20% VAT from a gross (VAT-inclusive) price, divide by 1.20. Do not simply subtract 20% — this gives the wrong answer.

Common Mistake — Why You Can't Just Subtract 20%

A common error is to remove VAT by subtracting 20% from a gross price. This is incorrect. If a price is £120 including 20% VAT, subtracting 20% gives £96 — but the correct net price is £100 (£120 ÷ 1.20 = £100).

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