Start from the right base
VAT is calculated on the net price. At 20%, £100 net plus £20 VAT gives £120 gross. The £20 tax is 20% of £100, but only one sixth of £120. This difference explains why applying a 20% discount to a gross figure produces the wrong net value.
Divide to work backwards
Use gross ÷ 1.20 to remove 20% VAT, or gross ÷ 1.05 for 5% VAT. The difference between gross and net is the tax amount. For £120 including 20% VAT, the answer is £100 net and £20 VAT; subtracting 20% of £120 would incorrectly give £96.
Compare quotations consistently
Mark every price as net or VAT-inclusive before putting two quotes side by side. If one supplier quotes £100 plus VAT and another quotes £120 including 20% VAT, their gross totals are the same. Do not add VAT again to a line that already includes it.
Classification still needs checking
The calculator applies a rate you select. It does not establish whether a supply is standard-rated, reduced-rated, zero-rated or exempt. Zero rating and exemption are distinct treatments. Use HMRC’s current guidance for the actual goods or services and ask for an appropriate invoice.
Sources & methodology
- GOV.UK: VAT rates
Standard rate 20%, reduced rate 5%, zero rate 0%; eligibility depends on the supply.
Checked 8 Oct 2026