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VAT & Reverse VAT Calculator

Net Amount (Exclusive of VAT): -

Gross Amount (Inclusive of VAT): -

Total VAT: -

Value Added Tax (VAT) can be confusing with all the numbers and percentages, especially when you need to figure out VAT backwards or find the original price without VAT. Whether you own a business, work as a freelancer, or are just shopping, knowing how to calculate VAT, including how to do reverse VAT calculations, is valuable.

In this guide, we’ll explain how to reverse VAT, explain different VAT rates, and use a reverse VAT calculator to simplify things. Let’s get started.

What is VAT?

VAT, or Value Added Tax, is a tax added to most goods and services at each stage of production or sale where value is added. When you buy something, the price usually includes VAT, which means you’re paying a little extra as a tax. Knowing how to separate and reverse the VAT amount helps you figure out how much things cost without VAT.

VAT applies to most things you buy unless the government says they are exempt or zero-rated. For example, many essential food items, medical supplies, and children’s clothing don’t have VAT. But for most other items, VAT is part of the price. VAT-registered businesses must add VAT to their products or services, but they can also claim back the VAT they paid on business expenses, which helps lower their VAT payable.

How to calculate UK VAT

How to Calculate VAT: The Basics

To calculate VAT, you need to know these key parts:

  • Net Amount: The cost of the item without VAT.
  • VAT Rate: The percentage of tax to be added.
  • Gross Amount: The total cost, including VAT.

For example, the UK’s standard VAT rate is 20%. Some items, like heating oil or children’s car seats, have a lower rate. The VAT rate can change, so it’s good to know what applies.

To find the VAT amount, use this formula:

Net Amount x VAT Rate = VAT Amount

To find the gross amount (total price):

Net Amount + VAT Amount = Gross Amount

Let’s do a simple example. If a product costs £100 before VAT, and the VAT rate is 20%, the VAT amount is:

£100 x 0.20 = £20

So, the gross amount you pay is:

£100 + £20 = £120

Step-by-Step Guide to Reverse VAT Calculation

  1. Find the VAT Rate: This could be the standard VAT rate (20%) or a reduced rate.
  2. Know the Gross Amount: This is the price that includes VAT.
  3. Use the Reverse VAT Formula: Divide the gross amount by (1 + VAT rate).

To make this easier, you can use an online VAT calculator or a reverse VAT calculator. Just enter the gross amount and choose the right VAT rate.

VAT calculators are great for making these calculations easy, especially when you have many transactions. By typing in the gross amount, you can quickly see how much VAT is included and what the price is without VAT. This is very helpful when filling out VAT returns.

Example: Reverse VAT Calculator UK

The gross amount is £150, and the VAT rate is 20%. To find the net amount:

Gross Amount / (1 + VAT Rate)

150 / 1.20 = 125

The net amount is £125, and the VAT amount is £25. This helps businesses know the price they will receive, excluding VAT.

For businesses, figuring out the price excluding VAT is important to understand profits and report the correct numbers to HMRC. Many accounting tools and e-commerce website systems can calculate VAT, but knowing how to do it yourself helps avoid mistakes.

Understanding Different VAT Rates

Different products and services have different VAT rates. Here are some of the main VAT rates:

  • Standard Rate (20%) applies to most products and services.
  • Reduced Rate (5%): This rate is for things like heating oil or sanitary products.
  • Zero Rate (0%): This applies to children’s clothing or certain foods.

To ensure the accuracy of your VAT returns, you must use the correct VAT rate based on the item or service. Using the wrong rate can lead to mistakes and possibly fines. HM Revenue and Customs (HMRC) is strict about ensuring businesses report VAT correctly.

Some items may have a reduced VAT rate instead of the standard rate, which means they still have VAT but at a lower percentage. Knowing when to use which rate is important for accurate accounting.

Why Working Out VAT Backwards Matters

Working out VAT backwards is especially useful for businesses. When you prepare VAT returns, you need to know how much VAT you have included in your sales so you can pay it to HMRC. By figuring out the VAT portion, you can determine your net revenue and the amount of VAT payable.

This also helps with pricing. If you sell to consumers and other businesses, understanding the net price (without VAT) and the gross price (with VAT) helps you set fair prices and meet your VAT responsibilities. If you are VAT registered, you must charge VAT on your sales and report and pay it regularly, which means knowing how to calculate it both ways.

Using a Reverse VAT Calculator for Fast Results

An online reverse VAT calculator can make calculating VAT backwards easy. Enter the gross amount and choose the VAT percentage, and it will give you the net amount and show how much VAT is included.

For instance, if the price is £240, including 20% VAT, you can use a calculator to find out the amount without VAT.

Using a calculator can be very helpful if you’re submitting VAT returns or need to know your net revenue.

How to figure excluding VAT

Common VAT Calculations Explained

There are a few main ways to calculate VAT:

  1. Adding VAT: If you have the net amount and need to add VAT, multiply by (1 + VAT rate).
  2. Subtracting VAT: If you have the gross amount and need to take away the VAT, use the reverse calculation formula.
  3. VAT Returns: Add up all the VAT you’ve charged and paid over a set time to report to HMRC.

Filing VAT returns is important for VAT registered businesses because it shows all the VAT collected and paid during a time period. Understanding these calculations helps you stay on the right side of the law and avoid penalties. It’s also helpful for planning your budget since it lets you know how much VAT payable you owe.

FAQs on VAT Calculation

How do I calculate the VAT amount from a gross price?

To calculate the VAT from a gross price, divide the gross price by (1 + VAT rate) to find the net amount. Then, subtract the net amount from the gross to get the VAT.

What is the standard VAT rate in the UK?

The standard VAT rate in the UK is 20%. Some items have reduced or zero rates.

How can I calculate VAT online?

You can use an online VAT calculator to calculate both forward and backward VAT by entering either the net or gross amount.

What is the difference between gross and net amounts?

The gross amount is the price with VAT, while the net amount is the price without VAT. The difference is the VAT amount.

Conclusion

Knowing how to calculate VAT, including working out VAT backwards, is helpful for everyone, especially businesses. Whether you use a reverse VAT calculator, work out the formula by hand, or an online VAT calculator, getting these calculations right means you won’t overpay or undercharge VAT. Use these tips to make informed choices, and check out more tools on our website to help you with VAT calculations and VAT returns.

For more tools and insights, visit our blog or contact us for professional help with VAT and financial matters.

Always double-check your VAT calculations or use tools to make the process easier. VAT can be complicated, but with the right help and information, you can manage it and ensure your business runs smoothly.

Wesley Cude

Wesley Cude is the Founder of Cude Design and previously established The CBD Supplier, which he recently sold. A seasoned remote worker since 2013, he splits his time between London and Lisbon. Wesley is a driven entrepreneur with a keen focus on SEO.