Updated on May 30, 2022
Working Out VAT
Do you want to calculate VAT on your own? So, let me attempt to explain how it works. I’ll explain Gross and Nett first, and then we’ll go over the math…
The term “gross” refers to a price that includes VAT. Also known as “inc VAT.”
Nett: A Nett price is one that does not include VAT. Also known as “net” or “ex VAT.”
Work out your ratio
A ratio is used to perform these calculations (also called the VAT fraction). To get started, you’ll need to know what your current ratio is. For the most part, exercising is a piece of cake. Subtract 1 from your VAT rate and multiply it by 100. In this example, a 20 percent rate gives you a ratio of 1.20 (that’s 0.2 + 1 = 1.2):
A rule of thumb is to simply put “1.” in front of the VAT rate, thus 20% becomes 1.20, 17.5 percent becomes 1.175, and 5 percent is 1.05 percent.
Using a 20% VAT rate in the United Kingdom, the ratio is 1.20. It is 1.23 if you live in Germany and your rate is 23%.
The process of adding VAT to an amount is simple. In order to calculate your Nett amount, you just multiply your ratio.
A chair might cost £150 net, but if you want to charge VAT at 20%, you’d enter this formula instead:
This results in a total of £180, which includes VAT.
VAT is as simple as subtracting it from a number (provided you have a calculator, I’m horrible at division). It’s as simple as dividing your Gross Revenue by the ratio you’ve chosen.
As an illustration, to determine the Nett price of a table for which you paid £180 plus 20% VAT, you would follow these steps:
For example, 150 / 1.20 = 180
As a result, the Nett amount is £150.
Finding the VAT amount from a Gross amount
Sometimes you have a total Gross amount and need to find the amount of VAT it contains. The simplest method is to find the Nett amount (see Removing VAT above) and take the Nett away from the Gross.
Going back to our example, if you bought a table for a Gross price of £180 including 20% VAT and want to find the amount of VAT included in the price, you do this:
180 ÷ 1.20 = 150
180 – 150 = 30
So the amount of VAT in this case is £30.
Now you know all about calculating VAT. It’s not rocket science, but i’m sure you’ll agree that using our VAT Calculator is even easier.