VAT: How to Add or Remove VAT (20%, 5%, 0%)
The fastest way to avoid VAT mistakes is to memorise the two key formulas: add VAT by multiplying the net by (1 + rate), and remove VAT by dividing the gross by (1 + rate). Here’s the detail, the pitfalls, and examples you can mirror on invoices.
1) VAT Rates (UK)
- Standard rate: 20%
- Reduced rate: 5% (certain energy-saving measures, some children’s car seats, etc.)
- Zero rate: 0% (most basic foods, children’s clothes, books, etc.) — still VAT-taxable, but at 0%
Exempt items are outside the scope of VAT (e.g., postage stamps, some financial services); treat differently from zero-rated.
2) Core Formulae
Add VAT (find gross from net): gross = net × (1 + rate)
VAT amount from net: vat = net × rate
Remove VAT (find net from gross): net = gross ÷ (1 + rate)
VAT amount from gross: vat = gross − net = gross × rate ÷ (1 + rate)
Where rate is 0.20, 0.05, or 0.00.
3) Quick Examples
| Scenario | Formula | Result |
|---|---|---|
| Add 20% VAT to £80 net | 80 × 1.20 |
£96 gross (VAT = £16) |
| Remove 20% VAT from £120 gross | 120 ÷ 1.20 |
£100 net (VAT = £20) |
| Add 5% VAT to £200 net | 200 × 1.05 |
£210 gross (VAT = £10) |
4) Rounding Rules (Invoices & Receipts)
- Round monetary figures to 2 decimal places (nearest penny) unless your invoicing rules specify otherwise.
- Consistency is key: either round at line level then sum, or calculate on the invoice total. Don’t mix approaches.
- Unit pricing with quantities should calculate VAT on the extended line amount (price × qty) before rounding.
- If using multiple rates, show subtotals per rate (net, VAT, gross) for clarity.
5) Common Pitfalls to Avoid
- Using 20% of gross to remove VAT: Wrong. Use
gross ÷ 1.20, notgross × 0.80. - Mixing zero-rated and exempt: Zero-rated is 0% VAT but still reportable. Exempt is outside VAT; treat separately.
- Incorrect rounding order: Switching between line-level rounding and total-level rounding causes penny differences.
- Foreign currency invoices: Use the correct HMRC exchange rate and show GBP VAT if required.
- Reverse charge / CIS / margin schemes: Special rules apply — follow scheme-specific guidance.
6) Worked Invoice Example (20% VAT)
| Description | Qty | Unit Net | Line Net | VAT | Gross |
|---|---|---|---|---|---|
| Service A | 2 | £50.00 | £100.00 | £20.00 | £120.00 |
| Product B (5% VAT) | 3 | £10.00 | £30.00 | £1.50 | £31.50 |
| Book (0% VAT) | 1 | £12.00 | £12.00 | £0.00 | £12.00 |
| Totals | £142.00 | £21.50 | £163.50 | ||
7) Useful Shortcuts
- From gross to VAT (20%):
VAT = gross × 20 ÷ 120 - From gross to VAT (5%):
VAT = gross × 5 ÷ 105 - From gross to net (any rate):
net = gross ÷ (1 + rate) - From net to gross (any rate):
gross = net × (1 + rate)
Want to calculate instantly? Try the VAT Calculator to add or remove VAT at 20%, 5% or 0% in one click.