How to Calculate VAT - dummies

By Colin Barrow

Part of Starting a Business Cheat Sheet (UK Edition)

Calculating the VAT (Value Added Tax) element of any transaction can be a confusing conundrum. By following these three simple steps, you can get the sum right first time:

  1. Take the gross amount of any sum (items you sell or buy) – that is, the total including any VAT – and divide it by 120, if the VAT rate is 20 per cent. (If the rate is different, add 100 to the VAT percentage rate and divide by that number.)

  2. Multiply the result from Step 1 by 100 to get the pre-VAT total.

  3. Multiply the result from Step 1 by 20 to arrive at the VAT element of the bill.