Let’s break it down!
Not sure how to work out the price before VAT’s been added? You’re definitely not the only one.Whether you’re pulling together an invoice, prepping a quote, or reviewing your accounts, knowing how to take VAT off a total is a useful trick to have up your sleeve.
If you’re after an easier way to handle the maths, the Pie Tax app helps you calculate and keep your numbers in check, without the stress.
Or if you’re just here to get to grips with it all, let’s break it down!
What Is VAT and When Is It Charged?
VAT can sound a bit intimidating at first, but once you get to grips with a few key terms, it all starts to make sense.
First up, VAT (short for Value Added Tax) is a consumption tax charged on most goods and services in the UK. You’ll usually see it included in the total price of what you’re buying, but behind the scenes, it’s added at different stages, from production right through to the final sale.
The standard VAT rate is 20%, and it applies to most everyday items. But not everything is taxed the same. There’s a reduced rate of 5% for things like children’s car seats and home energy, and a zero rate (0%) for essentials like children’s clothes and most food. That means they’re still VAT-taxable, but you don’t pay VAT at the checkout.
Understanding which rate applies, and what terms like zero-rated, exempt, or standard rate actually mean, can help you charge the right amount if you’re a business, or just feel more confident knowing what you're paying for as a customer.
It’s all part of making VAT feel less like a mystery and more like something you can actually manage!
The Formula to Remove VAT from a Price
Figuring out how to remove VAT from a price sounds trickier than it actually is, but once you know the formula, it’s easy!
Here’s the simple trick:
To get the net price (the price before VAT), use this formula:
Net price = Gross price ÷ (1 + VAT rate)
In the UK, the standard VAT rate is 20%, so you’d divide by 1.2.
For example, say something costs £120 including VAT. To find the price excluding VAT:
£120 ÷ 1.2 = £100 (which means £20 is the VAT).
This is super handy when you're checking invoices, working out your profit margin, or filing VAT returns. But, quick tip: make sure VAT is actually included in the price before you start subtracting.
Some prices are already net, and you don’t want to accidentally undercharge or over-claim!
When Would You Need to Remove VAT?
There are a few common situations where it’s helpful to remove VAT from a price.
One is when you’re creating a VAT invoice: you need to show the net amount and VAT separately, which means working backwards from the total price. It’s also useful when calculating profit margins or comparing net costs with suppliers.
Removing VAT is handy for preparing VAT returns, too. You’ll often need to check what you’ve paid and what you’ve charged, excluding VAT, to get your numbers right. This is essential when you file VAT returns with HMRC.
And if you’re dealing with international customers, especially those outside the UK, VAT might not apply. In those cases, you’ll need to take it off to show the correct export price.
In short, if you’re VAT-registered, knowing how to work backwards from a gross price can save you time, and make sure your records stay clean!
What’s the Difference Between VAT-Inclusive and VAT-Exclusive Prices?
One thing that causes confusion is knowing whether a price already has VAT added, or if it still needs to be included. A VAT-inclusive price is the total price the customer pays, with VAT baked in, also known as the gross amount. A VAT-exclusive price shows the cost before VAT is added.
Knowing the difference matters. If you’re quoting a client, you’ll need to be clear which type of price you’re using. Charging VAT on an already VAT-inclusive price without adjusting it properly? That eats into your margins fast.
Always double-check whether your price includes VAT before removing it, or charging it. And if in doubt, a quick calculation using our Pie Tax app can clear things up straight away!
How to Check If VAT Is Included in a Price
Before you start stripping VAT out of a figure, it’s worth checking whether VAT is actually included in the original price you’re looking at. This step is often skipped, and it’s where mistakes creep in.
Some businesses advertise VAT-inclusive prices (especially in retail), while others show VAT-exclusive prices, which is more common in B2B settings. If you’re not sure, check the invoice or quote—it should clearly state whether VAT has been applied and at what rate.
If it’s not clear, ask. Assuming VAT is included when it’s not can mean undercharging customers or over-claiming VAT, which HMRC won’t be too happy about!
Common Mistakes to Avoid When Removing VAT
Taking VAT off a price seems easy, but it’s just as easy to get wrong if you’re not careful.
One of the most common errors is using the wrong VAT rate. Not everything is charged at 20%, some items use 5% or even 0%. If you apply the standard formula to all prices, your net amount could be off. Not sure which rate applies? Check the official list on gov.uk.
Another easy slip-up: removing VAT from a price that never included it. If it’s already VAT-exclusive, there’s nothing to subtract. Always confirm what kind of figure you’re working with before you do the maths.
Rounding issues can also cause problems, especially on bulk transactions. Even a penny or two can add up fast.
And finally, don’t assume VAT was charged. Some goods and services are exempt or zero-rated, so VAT doesn’t apply. Always check the VAT status before applying the formula.
Getting it right just takes a moment, but it can save you a lot of backtracking later!
Final Thoughts
Removing VAT from a price is easier than it sounds once you know the formula!
Whether you’re invoicing clients, doing your books, or prepping a VAT return, having this skill makes things quicker and more accurate.
Want to make VAT even simpler? The Pie Tax app handles the numbers for you, so you can focus on your business, not your calculator! Win win!
Make VAT Simpler with Tools That Do the Heavy Lifting
The Pie Tax app takes the stress out of VAT, helping you log expenses, calculate what you owe, and submit your returns without the usual admin headache. It’s built for small businesses and sole traders who just want things to work smoothly, without the spreadsheets or confusion.
You’ll get smart nudges and easy-to-use features that help you avoid missed deadlines and costly mistakes.
Cut through the complexity. Try Pie Tax and take control of your VAT today.
