In the UK we have to pay VAT (Value Added Tax) on many of the items we purchase. Most people know how to add VAT to a value but have difficulty subtracting VAT. This article explains how to do just that.
As of the time of writing, VAT in the UK stands at 17.5%. In January 2011 this is set to change to 20%. We will show some examples below using both VAT rates. Use this calculation when you know the price of an item including VAT (Gross Price) and you want to know what the price was before VAT was added (Net Price):
Example 1: Presuming VAT at 17.5%
Gross Price divided by 1.175 = Net Price (£150 / 1.175 = £127.66)
In this example the price including VAT (Gross) was £150 and the price before VAT was added (Net) was £127.66
Example 2: Presuming VAT at 20%
Gross Price divided by 1.2 = Net Price (£150 / 1.2 = £125.00)
In this example the price including VAT (Gross) was £150 and the price before VAT was added (Net) was £125.00
Calculating the divisor
In the above examples, the divisors were 1.175 and 1.2. How did we get to these? Simply take the rate of VAT i.e. 17.5 and divide by 100 to give you 0.175. Add 1 to this value to give you 1.175.
OK, so now you know the formula and could use a simple calculator to work out the price before VAT but if you want to make your VAT life really easy, why not use our iPhone VAT calculator. With VAT Pro all you need do is enter the price into the ‘Inclusive field’ if you need to know the exclusive price or enter the price into the ‘Exclusive field’ if you need to know the inclusive price. It really is as simple as that. VAT Pro has all VAT / Tax rates for European countries and US states allowing you to quickly switch rates if need be. VAT Pro remembers the VAT rate last used.