Add Or Remove VAT

How to Work Out VAT Backwards in the UK (Simple Step-by-Step Guide)

If you run a business in the UK you will often see prices that already include VAT. You may need to remove VAT from the total price. This is called working out VAT backwards. It is also known as reverse VAT calculation. Many business owners get confused here. They try to subtract 20%. That is wrong.

    All examples follow current UK VAT rules for 2026. If you want to calculate quickly, you can also use our UK VAT Calculator online tool.

    Let’s Start.

    What Does Working Out VAT Backwards Mean?

    When a price includes VAT, it is called a VAT inclusive price.

    Example:
    £120 (including VAT)

    Inside that £120, part of it is VAT.

    Working out VAT backwards means:

    • You start with the VAT inclusive price
    • You remove the VAT
    • You find the original VAT exclusive price

    This is common when:

    • You receive a receipt with total only
    • You need to record VAT for accounts
    • You want to know your real profit
    • You check supplier invoices

    It is very important for VAT registered businesses.

    UK VAT Rates Explained (2026)

    2026 the UK VAT rates remain:

    1. Standard Rate – 20%

    This is the main VAT rate in the UK.

    Most goods and services use 20% VAT.

    Examples:

    • Electronics
    • Clothing (adult)
    • Consultancy services
    • Tools and equipment

    2. Reduced Rate – 5%

    This applies to limited items such as:

    • Home energy
    • Child car seats

    3. Zero Rate – 0%

    VAT is charged at 0%.

    Examples:

    • Most food items
    • Children’s clothes
    • Books

    If you want full details, read our
    UK VAT Rate Guide.

    The Reverse VAT Formula (20% Standard Rate)

    Here is the most important part.

    Many people think:

    £120 – 20% = £96

    That is wrong.

    Why?

    Because 20% VAT was added to the original price.

    You must divide, not subtract.

    Correct VAT Backwards Formula (20%)

    VAT Exclusive Price = VAT Inclusive Price ÷ 1.20

    Why 1.20?

    Because:
    100% + 20% = 120%
    120% = 1.20

    So dividing by 1.20 removes the VAT.

    VAT Amount Formula

    VAT Amount = VAT Inclusive Price – VAT Exclusive Price

    That is it.

    Simple.

    Reverse VAT formula example calculation on paper.

    Step-by-Step Example 1 – Removing 20% VAT from £120

    Let’s say you have:

    Total price: £120 (VAT included)

    Step 1: Divide by 1.20

    £120 ÷ 1.20 = £100

    This is your VAT exclusive price.

    Step 2: Find VAT amount

    £120 – £100 = £20

    So:

    • Net price = £100
    • VAT = £20
    • Total = £120

    Simple and clean.

    Step-by-Step Example 2 – Removing VAT from £240

    Total price: £240 (VAT inclusive)

    Step 1:

    £240 ÷ 1.20 = £200

    Step 2:

    £240 – £200 = £40 VAT

    Breakdown:

    • Net price = £200
    • VAT = £40
    • Total = £240

    Notice something?

    20% of £200 = £40

    This proves the formula works.

    Step-by-Step Example 3 – Removing VAT from £1,200

    This is common in business invoices.

    Total invoice: £1,200 (including VAT)

    Step 1:

    £1,200 ÷ 1.20 = £1,000

    Step 2:

    £1,200 – £1,000 = £200 VAT

    Result:

    • VAT exclusive price = £1,000
    • VAT amount = £200

    Now you can record this correctly in accounts.

    Reverse VAT for 5% Rate

    For 5% VAT, the formula changes slightly.

    VAT Backwards Formula (5%)

    VAT Exclusive Price = VAT Inclusive Price ÷ 1.05

    Why?

    Because:
    100% + 5% = 105%
    105% = 1.05

    Example – £105 with 5% VAT

    Total price: £105

    Step 1:
    £105 ÷ 1.05 = £100

    Step 2:
    £105 – £100 = £5 VAT

    So:

    • Net price = £100
    • VAT = £5
    • Total = £105

    Very simple.

    How to Remove 20% VAT Quickly (Mental Trick)

    Here is a quick shortcut.

    For 20% VAT only:

    Instead of dividing, you can multiply by 0.8333

    Because:

    1 ÷ 1.20 = 0.8333

    So:

    £120 × 0.8333 ≈ £100

    This is useful for quick checks.

    Still, dividing by 1.20 is safer.

    Common Mistakes When Working Out VAT Backwards

    Mistake 1: Subtracting 20%

    Wrong method:
    £120 – 20% = £96

    This is incorrect.

    You must divide.

    Mistake 2: Dividing by 20

    Some people try:

    £120 ÷ 20

    Completely wrong.

    Always divide by 1.20 for 20% VAT.

    Mistake 3: Using Wrong VAT Rate

    Check if the item is:

    • 20%
    • 5%
    • 0%

    Using wrong rate gives wrong results.

    Mistake 4: Forgetting to Keep Records

    If you are VAT registered, HMRC expects:

    • Correct VAT records
    • Correct invoice breakdown
    • Accurate VAT return

    Why Businesses Need Reverse VAT Calculation

    If you run a UK business in 2026, this skill is very important.

    1. VAT Returns

    When filing VAT return, you must report:

    • Output VAT (VAT you charged)
    • Input VAT (VAT you paid)

    You need the correct VAT amount.

    2. Checking Supplier Invoices

    Some invoices show only total.

    You must extract VAT correctly.

    3. Profit Calculation

    If you think £120 is profit, you are wrong.

    Only £100 belongs to you.

    £20 goes to HMRC.

    4. Flat Rate Scheme Users

    If you use the Flat Rate VAT Scheme UK you still need to understand VAT calculations properly. The scheme changes how you pay VAT, but knowing the maths helps avoid mistakes.

    Comparison: Adding VAT vs Removing VAT

    Let’s compare clearly.

    Adding 20% VAT

    Formula:

    VAT Inclusive Price = Net Price × 1.20

    Example:

    £100 × 1.20 = £120

    Removing 20% VAT

    Formula:

    VAT Exclusive Price = VAT Inclusive Price ÷ 1.20

    Example:

    £120 ÷ 1.20 = £100

    One multiplies.
    One divides.

    [Insert image here: VAT inclusive vs exclusive comparison chart]

    When Should You Use a UK VAT Calculator?

    Manual calculation is good.

    But for:

    • Large invoices
    • Multiple transactions
    • Quick checks
    • Error prevention

    Use an online tool.

    Our UK VAT Calculator
    helps you:

    • Add VAT
    • Remove VAT
    • Switch rates
    • Get instant results

    No maths stress.

    FAQ – Work Out VAT Backwards UK

    1. How do I work out VAT backwards in the UK?

    Divide the VAT inclusive price by 1.20 for 20% VAT.

    Example:
    £120 ÷ 1.20 = £100

    Then subtract to find VAT amount.

    2. How do I remove 20% VAT from a price?

    Use this formula:

    VAT Exclusive Price = VAT Inclusive Price ÷ 1.20

    Never subtract 20% directly.

    3. What is the VAT backwards formula?

    For 20% VAT:

    Divide by 1.20

    For 5% VAT:

    Divide by 1.05

    4. What is VAT inclusive price?

    A VAT inclusive price already contains VAT.

    Example:

    £120 including VAT.

    5. What is VAT exclusive price?

    This is the original price before VAT was added.

    Example:

    £100 net
    £20 VAT
    £120 total

    6. Is reverse VAT calculation different in 2026?

    No.

    UK standard VAT remains 20% in 2026.

    The formula stays the same.

    Final Thoughts

    Working out VAT backwards in the UK is simple once you know the rule:

    • Divide by 1.20 for 20%
    • Divide by 1.05 for 5%

    Never subtract the VAT percentage directly.

    This small skill prevents:

    • Accounting mistakes
    • Wrong VAT returns
    • Lost profit
    • HMRC issues

    If you want faster results use our UK VAT Calculator to remove VAT instantly and accurately. Understanding reverse VAT calculation gives you control over your numbers. And control over numbers means control over your business.

    Similar Posts