How to calculate VAT-inclusive prices (and take VAT back out)
Published
To add VAT, multiply the net price by (1 + rate). To take VAT out of a gross price, divide by (1 + rate). Subtracting the rate from the gross price is the most common VAT mistake, and it always overstates the tax.
Adding VAT
Gross = net × (1 + rate)
A product with a net price of £100 at 20% VAT:
- VAT = £100 × 0.20 = £20.00
- Gross price = £120.00
Removing VAT
Net = gross ÷ (1 + rate), and VAT = gross − net
From a shelf price of £120 at 20%:
| Correct | Common mistake | |
|---|---|---|
| Calculation | 120 ÷ 1.20 | 120 × 20% |
| VAT | £20.00 | £24.00 |
| Net revenue | £100.00 | £96.00 |
The mistake takes 20% of a figure that already contains the tax, so it counts tax on the tax. On a whole catalogue, that makes every product look less profitable than it is, and it pushes people to raise prices they didn’t need to raise.
Why it matters for your margin
Your revenue is the price without VAT, because the VAT is passed on to the tax authority. If you sell at £29.99 including 20% VAT, you receive £24.99 (29.99 ÷ 1.2 = 24.9917). Every margin, markup or profit figure should start from that £24.99, not from £29.99.
VAT and marketplace fees
Many marketplaces charge their commission on the price the buyer pays, which includes VAT. A 15% commission on £29.99 is £4.50 — that is 18% of your £24.99 net revenue. Check what your marketplace charges on:
- the item price with or without tax,
- with or without the shipping the buyer pays.
The profit calculator lets you set this for each fee, and the VAT calculator does the conversion in either direction.
Rounding
Calculate with the exact amounts and round once, at the end, to the smallest unit of the currency. Rounding each step separately can shift totals by a cent per line, which adds up across many orders.
Which rate applies to you depends on your products, your registration and where you sell. Check with your tax authority or adviser; this guide only explains the arithmetic.