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How to calculate VAT from VAT-inclusive amounts

How to calculate VAT from VAT-inclusive amounts

Many VATable goods and services are sold inclusive of VAT, with the VAT element shown on the invoice or receipt. Sometimes however VATable products or services are sold including VAT where the amount of VAT is not shown separately at the time of sale. When this is the case, buyers must still accurately calculate the VAT they can reclaim from HM Revenue & Customs (HMRC) and suppliers must still accurately calculate the VAT they must pay to HMRC.

This guide shows how buyers and sellers can accurately calculate the VAT component and the VAT-exclusive price of a VAT-inclusive price.

On this page:

Why VAT needs to be calculated from a VAT-inclusive price
How to calculate the VAT in a VAT-inclusive price
Using VAT fractions to calculate the VAT
VAT rates are subject to change

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

Sometimes VATable products or services are sold including VAT where the amount of VAT is not shown separately at the time of sale. 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 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 - 17.5 per cent up to 30 November 2008, and from 1 December 2008 until 31 December 2009 the standard rate is 15 per cent. It will change back to 17.5 per cent on 1 January 2010.
Reduced rate - 5 per cent.
Zero rate - 0 per cent.

There are also items exempt from VAT.

Find out more about the different VAT rates

Find more information about the VAT retail accounting schemes

Get information on choosing the best VAT accounting scheme for your business

Find out when you can reclaim VAT and when you can't

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How to calculate the VAT in a VAT-inclusive price

The standard rate of VAT is 17.5 per cent up to 30 November 2008 and reduces to 15 per cent on 1 December 2008 until 31 December 2009. It changes back to 17.5 per cent on 1 January 2010.

First let's look at how VAT is calculated, using the standard rate of VAT as an example.

When you know the VAT-exclusive price and you want to find out how much the VAT is on that amount, you can work it out by calculating the VAT on the VAT-exclusive amount and then adding on the VAT. For example, using £100 VAT-exclusive price with standard rate VAT at 17.5 per cent:

multiply £100 by 17.5 per cent (or 0.175) which gives £17.50 VAT
add the VAT and the VAT-exclusive price together - that's £17.50 plus £100
the result is a VAT-inclusive price of £117.50

If the standard rate of VAT used is 15 per cent, the calculation on a VAT-exclusive price of £100 would be:

multiply £100 by 15 per cent (or 0.15) which gives £15 VAT
add the VAT and the VAT-exclusive price together - that's £15 plus £100
the result is a VAT-inclusive price of £115

Sometimes you know the VAT-inclusive price and you want to find the amount of VAT to pay or reclaim, or you want to work out the VAT-exclusive price. For example, using £117.50 VAT-inclusive price with standard rate VAT at 17.5 per cent:

take the VAT-inclusive price of £117.50 and divide it by 1.175 - this gives £100 which is the VAT-exclusive amount
take away the VAT-exclusive price from the VAT-inclusive price - that's £117.50 less £100
the result is the VAT amount of £17.50

If the standard rate of VAT used is 15 per cent, the calculation on a VAT-inclusive price of £115 would be:

take the VAT-inclusive price of £115 and divide it by 1.15 - this gives £100 which is the VAT-exclusive amount
take away the VAT-exclusive price from the VAT-inclusive price - that's £115 less £100
the result is the VAT amount of £15

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Using VAT fractions to calculate the VAT

You don't need to do this calculation. You can instead 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.

Get information on finding the right VAT rate for particular goods or services

**Fractions for calculating the VAT in inclusive prices**
Rate of VAT	VAT fraction
Standard rate - 17.5%	7/47
Standard rate - 15% from 1 December 2008 to 31 December 2009	3/23
Reduced rate of VAT - 5%	1/21

Zero-rated goods have no VAT on them to calculate.

Examples of using VAT fractions to calculate VAT in inclusive prices

Standard rate at 17.5 per cent

If you have a VAT-inclusive amount of £117.50, to calculate the VAT amount using the VAT fraction you:

mutiply the VAT-inclusive amount of £117.50 by seven - which gives you £882.50
divide £882.50 by 47 - which gives £17.50 VAT

Standard rate at 15 per cent (from 1 December 2008 to 31 December 2009)

If you have a VAT-inclusive amount of £115, to calculate the VAT amount using the VAT fraction you:

multiply the VAT-inclusive amount of £115 by three - which gives you £345
divide £345 by 23 - which gives £15 VAT

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VAT rates are subject to change

The rates of VAT and the corresponding VAT fractions are changed from time to time, usually when the Chancellor of the Exchequer announces the change in the Budget.