The Problem

You have a price that already includes VAT - a receipt, a supplier invoice, a shop price - and you need to know what the price was before VAT was added. Maybe you're reclaiming VAT, splitting a cost between business and personal use, or checking a supplier's figures. It sounds simple, but most people get it wrong on their first attempt, because the obvious method gives the wrong answer.

The Mistake Almost Everyone Makes

The instinctive approach is: "VAT is 20%, so I'll take 20% off the total." That's wrong, and it's wrong in a way that costs real money if you're reclaiming VAT or setting prices.

If something costs 100 pounds before VAT, adding 20% VAT makes it 120 pounds. But taking 20% off 120 pounds gives you 96 pounds - not the 100 pounds you started with. The 20% was added to the smaller number, so removing 20% from the bigger number takes off too much.

This happens because VAT is a percentage of the net price (before VAT), not a percentage of the gross price (after VAT). Twenty percent of 100 is not the same as twenty percent of 120.

The Correct Method

To remove VAT from a VAT-inclusive price, you divide by the VAT rate expressed as a multiplier - not subtract a percentage.

At the UK standard rate of 20%:

  • Net price = Gross price divided by 1.20
  • VAT amount = Gross price minus Net price

The "1.20" is simply 1 (the original price) plus 0.20 (the VAT). Dividing by it reverses the original calculation exactly.

Worked Examples

Example 1: A 120 pound total at 20% VAT

  • Net price: 120 divided by 1.20 = 100 pounds
  • VAT amount: 120 minus 100 = 20 pounds

Example 2: A 59.99 pound total at 20% VAT

  • Net price: 59.99 divided by 1.20 = 49.99 pounds
  • VAT amount: 59.99 minus 49.99 = 10.00 pounds

Example 3: A 210 pound total at the 5% reduced rate

Some items - like domestic energy - use the reduced 5% rate. The method is identical, but the multiplier changes to 1.05:

  • Net price: 210 divided by 1.05 = 200 pounds
  • VAT amount: 210 minus 200 = 10 pounds

A Mental Shortcut: The VAT Fraction

If you're working things out in your head, there's a faster way. At 20% VAT, the VAT portion of any VAT-inclusive price is always exactly one sixth of the total.

Divide the gross price by 6 and you have the VAT amount instantly. 120 divided by 6 is 20 - and 20 pounds is indeed the VAT on a 120 pound total. This works because 20 out of 120 is one sixth. For the 5% rate, the VAT fraction is one twenty-first of the total instead.

This is why accountants often talk about "the VAT fraction" - it's the same calculation as dividing by 1.20 and subtracting, just expressed as a single step.

Step-by-Step Checklist

  1. Confirm the price you have actually includes VAT - not all prices do, especially between businesses
  2. Identify which VAT rate applies - 20% standard, 5% reduced, or 0% zero-rated
  3. Divide the gross price by the correct multiplier (1.20, 1.05, or 1.00)
  4. Subtract the result from the gross price to get the VAT amount
  5. Double-check by adding the VAT back onto the net price - it should give you your original total exactly

Common Mistakes

  • Subtracting 20% instead of dividing by 1.20. The single most common error, covered above - it always gives you a net figure that's too low.
  • Assuming every price includes VAT. Prices quoted between VAT-registered businesses are often shown net, with VAT added on the invoice. Check before you calculate.
  • Using the wrong rate. Reduced-rate and zero-rated items are common - food, books, children's clothing, domestic energy. Applying 20% to something charged at 5% gives a completely wrong answer.
  • Rounding too early. Do the division first, then round the final figures to two decimal places. Rounding midway through can throw the answer off by a penny, which matters on a VAT return.

Do It Instantly With WaqarWeb

The VAT Calculator has a dedicated "Remove VAT" mode that does exactly this calculation for you - enter the VAT-inclusive total, pick the rate, and it shows the net price and VAT amount instantly, with no risk of the subtraction mistake. If you're then producing an invoice, the Invoice Generator shows net, VAT and gross figures as separate lines automatically.

Frequently Asked Questions

What is the VAT fraction for 20%?

One sixth (1/6). Multiply any VAT-inclusive price by 1/6, or simply divide it by 6, to find the VAT amount. This is mathematically identical to dividing by 1.20 and subtracting the result from the original.

Why does dividing by 1.20 work but subtracting 20% doesn't?

Because VAT was originally added as 20% of the smaller net price. Dividing by 1.20 exactly reverses that addition. Subtracting 20% of the larger gross price removes a bigger amount than was ever added, so the answer comes out too low.

Does this work for other countries' VAT rates?

Yes - the method is the same for any rate. Just change the multiplier: for 23% VAT, divide by 1.23; for 19%, divide by 1.19. The principle of dividing rather than subtracting applies everywhere.

What if a price includes items at different VAT rates?

Then a single calculation won't work - you'd need to know the breakdown between items at each rate. This is why proper VAT invoices show each rate separately rather than one combined total.

Is this the same as calculating VAT "in reverse" or "backwards"?

Yes - "working out VAT backwards," "reverse VAT calculation," and "removing VAT from a price" all describe this same calculation: starting from a gross total and finding the net price.

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