ToolWrenVAT (Value Added Tax) — and sales tax more generally — trips people up because you often need to work backwards from a price that already includes it. This guide covers both directions: adding VAT to a net price, and removing VAT from a gross price.
The two prices: net and gross
The net price is the amount before tax. The gross price is what the customer actually pays, tax included. VAT is the difference. Confusion almost always comes from mixing these up — so the first question to ask is always "does this figure already include VAT?"
Adding VAT to a net price
To add VAT, multiply the net price by 1 + rate. At a 20% rate, a £50 net price becomes 50 × 1.20 = £60 gross, of which £10 is VAT. The formula is gross = net × (1 + rate). Our VAT calculator does this instantly for any rate.
Removing VAT from a gross price
This is the one people get wrong. You cannot just subtract 20% from a VAT-inclusive price — that gives the wrong answer. Instead, divide by 1 + rate. A £60 gross price at 20% is 60 ÷ 1.20 = £50 net, so the VAT was £10. The formula is net = gross ÷ (1 + rate). The VAT tool handles both add and remove modes so you never have to remember which way to go.
Why subtracting the percentage fails
Here is the intuition: the 20% VAT was added on top of the net price, not the gross. So 20% of the smaller net figure is a smaller amount than 20% of the larger gross figure. Subtracting 20% of the gross removes too much. Dividing by 1.20 correctly reverses the original multiplication.
Related everyday money maths
The same "work backwards from a total" thinking shows up elsewhere. Work out sale prices with the discount calculator, split a restaurant bill with the tip calculator, or convert between gross and take-home pay with the salary calculator. This is general information, not tax or financial advice.