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How to deduct VAT from a price
In the UK, VAT stands for Value Added Tax. We have to
pay VAT on most of the things that we buy. People can often
add VAT to a figure, but
when it comes to taking it off they go-a-bit-la-la interrogating
teachers, kids and old folks until they find an answer. So here
it is...
Taking-off VAT (Tax) from a price
This is the calculation you need to use when:
you know a price after tax (the
Gross price)
but want to find out the price before
tax (the Net price).
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If we assume that VAT is at a rate of 17.5%...
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Gross price
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divided by
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1.175
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= Net
price
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Price after
tax
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divided by
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1.175
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= Price
before tax
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In the equation above, 1.175
is the divisor. To get the divisor, we need to convert the tax
rate into a fraction by dividing it by 100 and then add the
resulting fraction to 1.
So, if we assume that VAT is at a rate of 17.5%,
we will need to divide 17.5 by 100, giving 0.175, then add 1.
Thus the divisor is 0.175 +1 = 1.175
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So now let's assume that a tax is at a new rate
of 2.5%...
First, get the divisor :
2.5 
100 = 0.025
0.025 + 1 = 1.025
The divisor is 1.025
So...
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Gross price
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divided by
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1.025
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= Net
price
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Price after
tax
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divided by
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1.025
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= Price
before tax
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E.g :
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£102.50
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divided by
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1.025
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= £100
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£102.50
inc Tax
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= £100
+ Tax
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Adding VAT to a price
Click here to see how to
add tax to a price.
Stick it Where the Sun Don't Shine!
If you want to keep a copy of this guide, why not print
it out and stick it onto the noticeboard in your accounts
office.
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