How to Add and Remove VAT from a Price
VAT is a percentage added on top of a net price. Adding it is easy; removing it is where people go wrong. The rate differs by country, so use your local one.
Adding VAT
Multiply the net price by (1 + rate). With a 5% rate, 100 × 1.05 = 105. The VAT amount is 5.
Removing VAT
Net price = Gross price ÷ (1 + rate)
If a receipt shows 105 including 5% VAT, the net price is 105 ÷ 1.05 = 100, and VAT is 5.
The mistake to avoid
Taking 5% off 105 gives 99.75, which is wrong. VAT was calculated on the net price, so you must divide, not subtract a percentage of the total.
Another example
An invoice total is 262.50 with 5% VAT. Net = 262.50 ÷ 1.05 = 250. VAT = 12.50.
Useful shortcut
For a 5% rate, the VAT inside a gross price is the price divided by 21. For 105, that is 5. For 20% VAT, divide the gross price by 6.
Keep records
Always note the net price, the VAT and the total separately on invoices. It makes returns and reporting much easier.
Checking an invoice
Suppose a supplier invoice shows a total of 420 including 5% VAT. Divide by 1.05 to get a net amount of 400, so VAT is 20. Add the VAT lines up over a month and you can see exactly what you paid in tax. Keep the net, VAT and gross amounts in separate columns in your records.
Try it yourself
Use our free percentage calculator to check your numbers instantly.