Calculating VAT for VAT-inclusive and VAT-exclusive prices

If you're registered for VAT and you're selling goods and services that are taxable for VAT, you will need to make a VAT calculation. If you advertise prices exclusive of VAT, you'll need to work out how much VAT to add. If you advertise prices inclusive of VAT, you'll need to work out how much VAT to record in your VAT account.

If you're registered for VAT and you want to claim VAT back on your purchases, then you'll find that sometimes goods and services that are VAT taxable are sold inclusive of VAT. The receipt may not show the amount of VAT included in the total. In this case, in order to claim back the VAT on your purchase, you'll need to calculate the VAT from the VAT-inclusive amount.

This guide shows how you can accurately calculate the VAT for a VAT-exclusive price, and the VAT component and the VAT-exclusive price of a VAT-inclusive price.

On this page:

Calculate standard-rate VAT for a VAT-exclusive price

The following example shows you how to work out the VAT - and the VAT-inclusive price - where the price before VAT is £100 and the standard rate of VAT applies.

Example at 20% - working out how much standard rate VAT to charge
Item Amount
Price excluding VAT £100
VAT rate 20%  
VAT (20% x £100) £20
Price including VAT £120

For a rate of 20 per cent, you can also work out the VAT-inclusive figure by multiplying by 1.2.

Top

Calculate reduced-rate VAT for a VAT-exclusive price

The following example shows you how to work out the VAT and the VAT-inclusive price where the price before VAT is £100 and the reduced rate of VAT applies.

Example - working out how much reduced rate VAT to charge
Item Amount
Price excluding VAT £100
VAT rate 5%  
VAT (5% x £100) £5
Price including VAT £105

Top

Why VAT needs to be calculated from a VAT-inclusive price

Sometimes products or services that are VAT taxable are sold at a price including VAT and the amount of VAT is not shown separately on the receipt or otherwise. Examples include vending machines, other machine services such as photocopiers and some retail sales.

Buyers must still accurately calculate the VAT they can reclaim from HM Revenue & Customs (HMRC). Suppliers must still accurately calculate the VAT they must pay to HMRC (unless they are using a retail VAT accounting scheme).

To do this, you need to know the rate of VAT for particular items. Currently there are three VAT rates:

  • Standard rate - 20 per cent.
  • Reduced rate - 5 per cent.
  • Zero rate - 0 per cent.

There are also items exempt from VAT.

Top

Calculate standard-rate VAT in a VAT-inclusive price

The standard rate of VAT is 20 per cent. If you know the VAT-inclusive price of a reduced-rate item and you want to find the amount of VAT to pay or reclaim, you can easily calculate the VAT-exclusive price and then subtract that from the VAT-inclusive price to find the VAT.

For example, using a £120 VAT-inclusive price with standard rate VAT at 20 per cent you find the VAT-exclusive price by dividing the VAT-inclusive price by 1.2:

Example at 20% - calculating the VAT in a VAT-inclusive price
Item Amount
Price including VAT £120
Price excluding VAT (£120 ÷ 1.2) £100
VAT (£120 - £100) £20

Using VAT fractions to calculate the VAT in a VAT-inclusive price

You might find it easier to use a 'VAT fraction' to find the amount of VAT that has been included in a VAT-inclusive price. You simply multiply that price by the appropriate VAT fraction to arrive at the VAT.

Fractions for calculating the standard-rate VAT in inclusive prices
Rate of VAT VAT fraction
Standard rate - 20% 1/6

Using the VAT fraction of 1/6 you can calculate the VAT included in a price of £120 as follows:

Example at 20% - using the VAT fraction 1/6 for calculating the VAT in inclusive prices
Step Amount
VAT-inclusive price £120
£120 ÷ 6 £20

Top

Calculate reduced-rate VAT in a VAT-inclusive price

If you know the VAT-inclusive price of a reduced-rate item and you want to find the amount of VAT to pay or reclaim, you can easily calculate the VAT-exclusive price and then subtract that from the VAT-inclusive price to find the VAT.

For example, using a £105 VAT-inclusive price with reduced-rate VAT at 5 per cent you find the VAT-exclusive price by dividing the VAT-inclusive price by 1.05:

Example at 5% - calculating the VAT in a VAT-inclusive price
Item Amount
Price including VAT £105
Price excluding VAT (£105 ÷ 1.05) £100
VAT (£105 - £100) £5

Using VAT fractions to calculate the VAT in a VAT-inclusive price

You might find it easier to use a 'VAT fraction' to find the amount of VAT that has been included in a VAT-inclusive price. You simply multiply that price by the appropriate VAT fraction to arrive at the VAT.

Fraction for calculating the reduced-rate VAT in inclusive prices
Rate of VAT VAT fraction
Reduced rate of VAT - 5% 1/21

Using the VAT fraction of 1/21 you can calculate the VAT included in a price of £105 as follows:

Example at 5% - using the VAT fraction 1/21 for calculating the VAT in inclusive prices
Step Amount
VAT - inclusive price £105
£105 ÷ 21 £5

Top

VAT rates are subject to change

The rates of VAT and the corresponding VAT fractions are changed from time to time. The Chancellor of the Exchequer will announce any change in the Budget.

Get information on keeping records, invoicing and accounting for VAT

Top