What is a Reverse VAT Calculation?
A reverse VAT calculation — also called removing VAT or working backwards from VAT — is when you take a gross (VAT-inclusive) price and calculate the original net (excluding VAT) amount and the VAT element separately. This is something UK businesses and freelancers need to do regularly when checking supplier invoices, reclaiming VAT on purchases, or verifying expenses.
The key thing most people get wrong is trying to remove 20% VAT by simply subtracting 20% from the gross price. This gives the wrong answer every time. Here is why, and how to do it correctly.
Why You Cannot Simply Subtract 20%
If a price is £120 including 20% VAT, many people assume the VAT is £24 (20% of £120). But that is incorrect. The VAT is actually £20, and the net price is £100.
The reason: the 20% VAT was calculated on the net price of £100, not on the gross price of £120. So to remove VAT correctly, you must divide by 1.20 — not subtract 20%.
HMRC Formula — Remove VAT (20%)
Net = Gross ÷ 1.20
e.g. £600 ÷ 1.20 = £500 net
VAT amount only
VAT = Gross ÷ 6
e.g. £600 ÷ 6 = £100 VAT
Remove 5% reduced rate
Net = Gross ÷ 1.05
e.g. £315 ÷ 1.05 = £300 net
📋 Worked Example — UK Freelancer Invoice
When Do UK Businesses Need Reverse VAT?
Reverse VAT calculations come up in several common UK business situations:
- Checking supplier invoices — verifying the VAT amount shown matches the net price
- Reclaiming input VAT — calculating how much VAT you can reclaim on business purchases from gross receipt amounts
- Processing expense claims — extracting VAT from employee receipts for VAT return purposes
- Retail receipts — most shops show only the total price; you may need to extract the VAT for your records
- Import purchases — working out the VAT element on goods where VAT was paid at the border
- Checking quotes — confirming whether a contractor's quote is net or gross when comparing
Reverse VAT at Different UK Rates
| Gross Price | At 20% (÷ 1.20) | Net Price | VAT |
|---|---|---|---|
| £120.00 | ÷ 1.20 | £100.00 | £20.00 |
| £600.00 | ÷ 1.20 | £500.00 | £100.00 |
| £1,200.00 | ÷ 1.20 | £1,000.00 | £200.00 |
| £6,000.00 | ÷ 1.20 | £5,000.00 | £1,000.00 |
HMRC guidance: VAT-registered businesses must keep records of VAT paid on purchases (input tax) and VAT charged on sales (output tax). The difference is what you pay or reclaim on your VAT return. Accurate reverse VAT calculations are essential for correct record-keeping. Source: HMRC VAT record keeping (GOV.UK)
Reverse VAT for the Flat Rate Scheme
If you are on the HMRC Flat Rate Scheme, you charge customers the standard 20% VAT rate as normal. However, the reverse calculation you need is slightly different — you apply your sector flat rate percentage to your gross (VAT-inclusive) turnover to find your VAT payment to HMRC. Use our Flat Rate VAT Calculator for this specific calculation.