The formula
Net price = price including VAT ÷ (1 + rate)
VAT = price including VAT × rate ÷ (100 + rate)
At 20% that is the total ÷ 1.2 for the net, or the total × 1/6 for the VAT.
Worked examples at 20%
£12.00 ÷ 1.2 = £10.00 net, £2.00 VAT
£59.99 ÷ 1.2 = £49.99 net, £10.00 VAT
£450.00 ÷ 1.2 = £375.00 net, £75.00 VAT
£18,000 ÷ 1.2 = £15,000 net, £3,000 VAT
Why you cannot just take 20% off
20% of £120 is £24, but the VAT in £120 is only £20. VAT was added as 20% of the net price, so taking it back out means dividing, not subtracting a percentage of the bigger number. It is the most common VAT mistake in spreadsheets.
When you need it
- Pulling the VAT out of a receipt to reclaim it on your VAT return.
- Working out what a shop price is worth before VAT when you set your own prices.
- Checking a supplier's invoice adds up.
- Splitting a VAT-inclusive fee or deposit into net and VAT for your books.
If you are on the Flat Rate Scheme you do not reclaim VAT on most purchases, so you will not need to reverse VAT out of receipts for your return. The Flat Rate Scheme calculator shows what you pay instead.
Questions
What is the VAT fraction?
It is the share of a VAT-inclusive price that is VAT. At 20% it is 1/6. At 5% it is 1/21. HMRC uses these fractions in its own guidance.
How do I remove 5% VAT?
Divide by 1.05, or multiply by 1/21 to get the VAT. £105 including 5% VAT is £100 net and £5 VAT.