VAT (Value Added Tax) is the most widely applied tax in Europe and many countries worldwide. Entrepreneurs, craftsmen, e-commerce sellers and individuals regularly need to calculate a pre-tax price from a VAT-inclusive price, or add VAT to a price. This simple but error-prone calculation deserves a clear formula.
VAT rates vary by country and product type. In the UK: 20% standard, 5% reduced (domestic energy, children's car seats), 0% zero-rated (food, children's clothing). In the EU, the standard rate ranges from 17% to 27% depending on the country. To go from pre-tax to VAT-inclusive, multiply by (1 + rate). To go from VAT-inclusive to pre-tax, divide by (1 + rate).
📐 Formula
VAT-inclusive = Pre-tax × (1 + VAT rate) | Pre-tax = VAT-inclusive / (1 + VAT rate) | VAT amount = VAT-inclusive - Pre-tax
📊 Reference table
| VAT rate | Main application | Pre-tax × factor | Example ($100 pre-tax) |
|---|---|---|---|
| 20 % (UK standard) | Most goods and services | × 1.20 | $120.00 incl. |
| 5 % (UK reduced) | Domestic energy, some food | × 1.05 | $105.00 incl. |
| 0 % (UK zero) | Food, children's clothing | × 1.00 | $100.00 incl. |
💡 Practical examples
Example 1: find pre-tax from a $240 VAT-inclusive invoice at 20%
Pre-tax = 240 / 1.20 = $200. VAT amount = 240 - 200 = $40. To declare on your VAT return.
Example 2: contractor invoice at $500 pre-tax
VAT-inclusive = 500 × 1.20 = $600. VAT amount = $100. Claim back as input tax if you are VAT registered.
Example 3: e-commerce item at $89.99 VAT-inclusive
Pre-tax = 89.99 / 1.20 = $74.99. VAT collected = $15.00. Amount to remit to HMRC if you are VAT registered.