Last updated: 14 October 2026
How do you calculate VAT-inclusive prices and net and gross amounts?
At the 20% standard rate, multiply the net price by 1.2 to get the VAT-inclusive (gross) price. To find the VAT inside a gross price, divide it by 6, which is the “VAT fraction” of 1/6. To get the net price from a gross price, divide it by 1.2. At the 5% reduced rate, multiply by 1.05, and the VAT fraction is 1/21.
Quick formulas
| You know | You want | Standard rate 20% | Reduced rate 5% |
| Net | VAT | Net × 0.20 | Net × 0.05 |
| Net | Gross | Net × 1.20 | Net × 1.05 |
| Gross | VAT | Gross ÷ 6 | Gross ÷ 21 |
| Gross | Net | Gross ÷ 1.20 | Gross ÷ 1.05 |
Worked examples
Adding VAT
A consultancy invoice of £2,500 net: VAT = £500, and the gross total is £3,000.
Removing VAT
A £90 receipt that includes 20% VAT: VAT = £90 ÷ 6 = £15, so the net amount is £75.
Reduced rate
Domestic energy of £210 including 5% VAT: VAT = £210 ÷ 21 = £10, so the net amount is £200.
The common mistake: taking 20% off the gross
Taking 20% off a gross price gives the wrong answer. 20% of £90 is £18, but the VAT in a £90 price is only £15. That is because VAT is 20% of the net price, not of the gross price.
UK VAT rates in 2026/27
- Standard (20%): most goods and services
- Reduced (5%): domestic fuel and power, children’s car seats and some energy-saving materials
- Zero (0%): most food, books, children’s clothes and public transport
- Exempt: insurance, finance, education by eligible bodies, and most residential rent
Rounding
You can round VAT on an invoice down to the nearest penny for each line or for the invoice total. Be consistent.
Flat rate scheme calculations
If you use the flat rate scheme, you still charge 20% VAT to customers. You pay HMRC a fixed percentage of your gross turnover, for example 16.5% for limited cost traders. If you are in your first year of VAT registration, you get a 1% discount.
Pricing tips for newly registered businesses
- Business customers can usually reclaim VAT, so you can add 20% on top
- Consumers can’t reclaim it, so you may need to absorb part of it
- Display VAT-inclusive prices to consumers
VAT on discounts and deposits
If you give a prompt-payment discount, charge VAT on the amount the customer actually pays. If you take a deposit, VAT is usually due when you receive it, not when the work is finished. For part-exchange deals, VAT is charged on the full value of the goods sold before the part-exchange is deducted. These are common errors on first VAT returns, so check them with your accountant.
Frequently asked questions
What is the VAT fraction?
At 20%, it is 1/6. At 5%, it is 1/21. Use it to extract VAT from a gross price.
Do I charge VAT on top of a quote?
Make clear whether quotes include VAT. If they don’t say, the price is assumed to include VAT.
How do I calculate VAT on a mixed invoice?
Calculate VAT separately for each rate.
Can I reclaim VAT on a receipt without a VAT number?
No. See recording VAT on expenses.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with VAT pricing and returns. See our VAT accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
