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.
Table of contents
1. How is VAT Calculated
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:
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.