You have a receipt for £120 and need to know how much it was before VAT. The temptation is to take off 20%: 120 − 24 = £96. But the correct answer is £100. That £4 gap is the most common VAT mistake, and across hundreds of invoices it adds up to a serious discrepancy in your books.
Why you can't just subtract the percentage
20% VAT is calculated on the net amount, not on the total. If the net price is £100, the VAT is £20 and the gross price £120. When you take 20% off £120, you're calculating 20% of a figure that already includes the tax, so you remove too much.
The right operation is the inverse of the one used to add VAT. If adding it means multiplying by 1.2, removing it means dividing by 1.2:
Net amount = Gross price ÷ (1 + rate / 100)
VAT = Gross price − Net amount
The formula at each UK rate
| Rate | Applies to | Divide by | £120 gross → net |
|---|---|---|---|
| 20% (standard) | Most goods and services | 1.20 | £100.00 |
| 5% (reduced) | Home energy, children's car seats, some home improvements | 1.05 | £114.29 |
| 0% (zero rate) | Most food, books, children's clothes | 1.00 | £120.00 |
The same gross price gives very different net amounts depending on the rate, so always check which rate each line of the receipt carries. Other countries work the same way with their own rates: 21% in Spain (÷ 1.21), 19% in Germany (÷ 1.19), 23% in Ireland (÷ 1.23).
A handy shortcut: the VAT fraction
You can also calculate the tax part of a gross price directly:
- At 20%, VAT is 1/6 of the gross price (20 ÷ 120). That's why HMRC calls it the "VAT fraction".
- At 5%, it's 1/21 (5 ÷ 105).
So on a £72 receipt at 20%, the VAT is 72 ÷ 6 = £12 and the net amount £60.
Worked examples
A freelancer's invoice. You charge a client £1,440 including VAT. Your net fee is 1,440 ÷ 1.2 = £1,200, and the VAT you'll pay over to HMRC is £240.
A domestic energy bill. A £210 bill at 5% has a net amount of 210 ÷ 1.05 = £200 and £10 of VAT.
A mixed receipt. A supermarket receipt can mix zero-rated food with standard-rated items. You can't divide the total by a single number: split the amount for each rate (it's usually itemised at the bottom of the receipt) and apply the formula to each block.
The mistakes that break the most invoices
1. Subtracting the rate instead of dividing
That's the mistake from the start. At 20%, subtracting instead of dividing makes your net amount 4% lower than it really is, and the VAT higher.
2. Rounding each line and then adding up
If you calculate the VAT of each item and round each result to two decimals, the sum can be a penny or two off the VAT calculated on the total. Invoicing software usually works per line or per total consistently; what matters is not mixing both methods on the same invoice.
3. Assuming everything is standard-rated
Children's clothes, most food and books are zero-rated, and home energy is at 5%. If you remove VAT from a £105 energy bill by dividing by 1.2, you get £87.50 instead of the real £100. Always check the rate printed on the invoice before doing the maths.
4. Forgetting that "exempt" isn't "zero-rated"
Exempt supplies (insurance, most financial services, some education) carry no VAT at all and don't belong in your VAT calculations, while zero-rated ones are taxable at 0%. The arithmetic is the same (nothing to remove), but they're reported differently on your VAT return.
Do it in a second
The VAT calculator has a "Remove VAT" mode: type the gross price, pick 20%, 5% or any other rate and you'll see the net amount and the VAT instantly, with no intermediate rounding. If you need to work out a discount or a percentage increase, use the percentage calculator.