VAT (Value Added Tax) is applied to most goods and services in the UK, currently at a standard rate of 20%. Knowing how to add it to a price, and how to remove it when a price already includes VAT, is useful for anyone running a business, doing expenses or checking a receipt. This guide covers both calculations clearly.
How VAT Works
VAT is a tax charged on the sale of most goods and services. In the UK, the standard rate is 20%, with a reduced rate of 5% for things like domestic fuel and children's car seats, and zero rate (0%) for most food, children's clothing and books. When a VAT-registered business sells something, it adds VAT to the price and passes that tax to HMRC.
Prices shown to consumers are usually VAT-inclusive (the VAT is already in the price). Business-to-business quotes are often shown ex-VAT (the VAT is on top). Knowing which you're looking at matters.
How to Add VAT to a Price
To add 20% VAT to a price, multiply the original price by 1.20. The "1" keeps the original price, and the ".20" adds 20%.
Net price (ex-VAT): £350.00
VAT at 20%: 350 × 0.20 = £70.00
Total (inc. VAT): £350 × 1.20 = £420.00
For the reduced 5% rate, multiply by 1.05. For a non-standard rate, the formula is always: original price × (1 + rate ÷ 100).
How to Remove VAT from a Price
If a price already includes 20% VAT and you want to find the original ex-VAT price, you divide by 1.20 — not subtract 20%. This is the part people most often get wrong.
Why divide rather than subtract 20%? Because the 20% VAT was calculated on the original price, not on the final price. If you subtract 20% from the final price, you're calculating 20% of the wrong number.
Price including VAT: £600
Ex-VAT: 600 ÷ 1.20 = £500
VAT component: £600 − £500 = £100
Check: £500 × 0.20 = £100 ✓
Price including VAT: £600
20% of £600 = £120
Incorrect result: £600 − £120 = £480 (wrong)
Check: £480 × 0.20 = £96, not £120 — the numbers don't reconcile.
How to Extract the VAT Amount
If you want to know exactly how much VAT is contained in a VAT-inclusive price:
At 20%, the multiplier is 20 ÷ 120 = 1/6. So the VAT in a £600 price is £600 × (1/6) = £100. This is known as the VAT fraction.
Common VAT Rates to Know
- Standard rate (20%): Most goods and services. Multiply by 1.20 to add; divide by 1.20 to remove.
- Reduced rate (5%): Domestic energy, children's car seats, some home improvements. Multiply by 1.05 to add; divide by 1.05 to remove.
- Zero rate (0%): Most food, books, children's clothing, public transport. No VAT calculation needed.
VAT for Freelancers and Small Businesses
If you're VAT-registered, you charge VAT to your clients, collect it, and pay it to HMRC quarterly (or monthly). You can also reclaim VAT on business expenses. The net amount you keep is the ex-VAT price; the VAT element passes straight through to the government.
When raising invoices, always show the net price, the VAT rate, the VAT amount and the total clearly. This is a legal requirement for VAT invoices and makes reclaiming VAT easier for your clients.
Calculate any VAT amount instantly — use the Add a Percentage or Reverse Percentage calculators on PercentageHQ.
Add a Percentage →Quick Reference
- Add 20% VAT: × 1.20
- Remove 20% VAT: ÷ 1.20
- Find VAT amount in a price: price × (1/6) = price ÷ 6
- Add 5% VAT: × 1.05
- Remove 5% VAT: ÷ 1.05
VAT rates in this article reflect the UK standard and reduced rates as of 2026. Tax rates are set by HMRC and can change. Always verify current rates before using for financial or accounting purposes.