How to Calculate VAT-Inclusive Prices and Net/Gross Amounts for a Business?

Q. I will have to Register my Business for VAT Soon, but I‘m Confused as How to Work Out Net and Gross Amounts, When the VAT Rate is 20%. If I Want to Receive £2000 for a Job, after VAT, What Do I Quote as the VAT-inclusive Price for the Customer? If my Customer will only Pay £1600, How do I Calculate What I will Get After Paying Over VAT?

A. If you start with the net figure and need to work out the gross amount including VAT, multiple the net amount by 1.2. Using your figures above:

£2000 x 1.20 = £2400. The VAT is £400.

When you start with the gross figure (the maximum the customer will pay) you need to divide by 6 to find the VAT. When the customer pays £1600:

£1,600/ 6 = £266.67. The VAT is £266.67. The net sale is £1333.33 (1600 – 266.67)

Once you are registered for VAT you will be able to reclaim VAT on your purchases, so the amount of VAT you pay to HMRC will be after deducting VAT you paid on things you buy for the business.

You may also qualify for the VAT flat rate scheme which could make the VAT calculations easier, but that will depend on your business sector.



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