How to Work Out VAT Backwards

Whether you are buying or selling, when it comes to filling in your returns you may need to work out VAT backwards on items sold VAT-inclusive.

Different rules apply for business registered under certain VAT accounting schemes, such as the second-hand scheme.

1. How is VAT Calculated

VAT is added to the net price of a service or product, at the applicable rate. For the purpose of this blog, I’ll assume that is 20% even though other rates exist.

So if you sell a product for £100, you add 20% for VAT and charge the total. In other words, £100 + £20 = £120 or £100 x 1.2. This is how I think about it visually:

Net Price100%
VAT20%
Gross Price120%
How to Calculate VAT Backwards

2. How to Calculate VAT Backwards

To remove VAT from a VAT-inclusive figure you’ll need work the figure out in reverse. Let’s say I have paid £100 for a product, including VAT.

To work out how much VAT I have paid I do the calculation £100 x 20/120 = £16.67. The amount I have paid is the gross figure of 120% (look at the table above) and I want 20%.

Here’s another example. I paid £240 for a product so that means I’ve paid VAT of £40 or £240 x 20/120.

3. How to Remove VAT to Find the Net Price of a VAT Inclusive Number

Using the same principle I can also work out the net amount I have paid on a VAT-inclusive price. On the product I paid £240 for that would be £200 calculated as £240 x 100/120.

About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.