Key takeaways
- To add 20% VAT to a net price, multiply it by 1.2: £100 becomes £120.
- To remove 20% VAT from a gross price, divide by 1.2: £120 becomes £100 net.
- The VAT inside a price that includes 20% VAT is one-sixth of that price, which HMRC calls the VAT fraction.
- To add 5% VAT, multiply by 1.05; to remove it, divide by 1.05; the VAT fraction at 5% is one twenty-first.
- Taking 20% off a VAT-inclusive price is wrong: on £120 it gives £24, not the correct £20.
- HMRC lets invoice traders round down the total VAT on an invoice to a whole penny (VAT Notice 700, section 17.5).
- The UK VAT rates are 20% standard, 5% reduced and 0% zero, set for the standard rate by section 2 of the Value Added Tax Act 1994.
To add 20% VAT to a price, multiply it by 1.2. To remove 20% VAT from a price that already includes it, divide by 1.2, or find the VAT by taking one-sixth of the gross. For the 5% reduced rate, multiply or divide by 1.05, and the VAT inside a gross price is one twenty-first.
The VAT formulas at a glance
Every VAT sum is one of four calculations. Use the multiplier for the rate you are working with.
| Task | At 20% | At 5% |
|---|---|---|
| Add VAT to a net price | × 1.2 | × 1.05 |
| Net price from a gross price | ÷ 1.2 | ÷ 1.05 |
| VAT inside a gross price | ÷ 6 | ÷ 21 |
| VAT on a net price | × 0.2 | × 0.05 |
Our VAT calculator does these sums for you at either rate.
How do you add 20% VAT to a price?
Multiply the net price by 1.2 to get the price including VAT. Then subtract the net price if you want the VAT on its own.
- Start with the net price: £250.
- Multiply by 1.2: £250 × 1.2 = £300.
- The VAT is £300 minus £250 = £50, which is the same as £250 × 0.2.
How do you remove 20% VAT from a price?
Divide the VAT-inclusive price by 1.2 to find the net price. The difference is the VAT.
- Start with the gross price: £300.
- Divide by 1.2: £300 ÷ 1.2 = £250 net.
- The VAT is £300 minus £250 = £50.
You get the same VAT by taking one-sixth of the gross: £300 ÷ 6 = £50. HMRC calls this the VAT fraction. In VAT Notice 700, paragraph 7.3.1, HMRC gives the formula as the rate divided by (100 plus the rate). At 20% that is 20/120, or one-sixth. See our guide to the VAT fraction.
Why you cannot just take 20% off
Taking 20% off a VAT-inclusive price gives the wrong answer. The VAT is 20% of the net price, not of the gross.
| Gross price | 20% of gross (wrong) | Correct VAT (÷ 6) |
|---|---|---|
| £120 | £24.00 | £20.00 |
| £300 | £60.00 | £50.00 |
| £2.40 | £0.48 | £0.40 |
HMRC uses the £2.40 example in Notice 700: the VAT is 40p, one-sixth of the price, not 20% of it.
How do you add or remove 5% VAT?
The 5% reduced rate works the same way with different numbers. GOV.UK says it applies to some goods and services, such as children’s car seats and home energy.
Adding 5%: multiply by 1.05. A £80 net energy bill becomes £80 × 1.05 = £84, with £4 of VAT.
Removing 5%: divide by 1.05. A £84 gross bill is £84 ÷ 1.05 = £80 net.
VAT inside a 5% price: divide by 21. £84 ÷ 21 = £4. The VAT fraction at 5% is 5/105, which is one twenty-first.
How should you round VAT?
HMRC lets businesses that issue VAT invoices round down the total VAT on an invoice to a whole penny. Notice 700, section 17.5, sets out the rules:
- Invoice total: round the total VAT down to a whole penny and ignore any fraction.
- Line by line: round each line down to the nearest 0.1p, or to the nearest 1p or 0.5p, and be consistent.
- Per unit: work to four decimal places and round to three, or round to the nearest 1p or 0.5p. Do not round VAT down to nil on a standard or reduced rate item.
Retailers follow section 17.6 instead and must not round down at line or invoice level.
Worked example. A price of £49.99 includes 20% VAT. The VAT is £49.99 ÷ 6 = £8.3317, which rounds down to £8.33. The net price is £49.99 minus £8.33 = £41.66.
Which rate applies to you?
Check the rate before you do the sum.
- If you sell most goods and services, use the 20% standard rate.
- If you sell items such as home energy or children’s car seats, use the 5% reduced rate.
- If you sell most food or children’s clothes, the rate is 0%, so no VAT is added.
- If you are not VAT registered, do not add VAT. You must register once taxable turnover in the last 12 months goes over £90,000, according to GOV.UK.
Our VAT rates and exemptions guide lists the rates by item, and what “plus VAT” means covers quotes and price lists.
Checklist before you send an invoice
- Confirm the VAT rate for each line.
- Show the net amount, the VAT and the gross total.
- Apply the same rounding method on every invoice.
- Check the VAT total equals the sum you will report on your VAT return.
Frequently asked questions
How do I add 20% VAT to a price?
Multiply the price by 1.2. For example, £100 plus VAT is £120.
How do I remove VAT from a price that includes it?
Divide by 1.2 for 20% VAT or by 1.05 for 5% VAT. For example, £120 including VAT is £100 net.
How do I find the VAT amount in a VAT-inclusive price?
Divide the price by 6 at 20% or by 21 at 5%. HMRC calls this the VAT fraction.
Why is the VAT on £120 not £24?
VAT is 20% of the net price, not the gross. £120 includes £100 net and £20 VAT, so taking 20% of £120 overstates it by £4.
Can I round VAT down?
Yes, if you issue VAT invoices. HMRC lets you round the total VAT on an invoice down to a whole penny, but retailers must follow different rules.
What is the 5% VAT fraction?
It is one twenty-first, or 5/105. Divide a 5% VAT-inclusive price by 21 to find the VAT.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance on 6 November 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.