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How to deduct VAT from a price
- (17.5%, 20% and 15%)
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).
17.5% (from 1st Jan 2010 to 4th Jan 2011)
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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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VAT Fluctuations
20% (from Jan 4th 2011)
More about the 2010 June Budget
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If we assume that VAT is at a rate of 20%... |
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Gross price |
divided by |
1.2 |
= Net price |
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Price after tax |
divided by |
1.2 |
= Price before tax |
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15% (from 1st December 2008 - 31st Decemeber 2009)
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If we assume that VAT is at a rate of 15%... |
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Gross price |
divided by |
1.15 |
= Net price |
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Price after tax |
divided by |
1.15 |
= Price before tax |
or in fractional form |
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Price after tax |
divided by |
23/20 |
= Price before tax |
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Other countries and USA states may have different rates of sales tax.
Working with other rates of sales tax
In the equation above, 1.175 is the divisor because we are working with a the UK VAT tax rate of 17.5%.
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 15%...
First, get the divisor :
15 100 = 0.15
0.15 + 1 = 1.15
The divisor is 1.15
So the back calculation for 15% VAT is ... |
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Gross price |
divided by |
1.15 |
= Net price |
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Price after tax |
divided by |
1.15 |
= Price before tax |
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E.g : |
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£115.00 |
divided by |
1.15 |
= £100 |
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£115.00 inc Tax |
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= £100 + Tax |
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Working with a New Rate of 15% VAT
Chancellor Alistair Darling introduced a temporary, lower, VAT rate in his pre-budget report announced on 24th Nov 2008. The temporary tax rate applied from 1st December 2008 until the 1st of Jan 2010.
The chancellor confirmed during his 2009 Pre-Budget report (on Dec 9th 2009), that the old rate of 17.5% would come into effect again on January 1st 2010.
See practical details about this change
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. |
