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 Value Added Tax, (VAT).
Calculator guide

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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).

20% (from Jan 4th 2011)

If we assume that VAT is at a rate of 20%...

Gross price

divided by

1.2

= Net price

Price after tax

divided by

1.2

= Price before tax

VAT Fluctuations

17.5% (from 1st Jan 2010 to 4th Jan 2011)

If we assume that VAT is at a rate of 17.5%...

Gross price

divided by

1.175

= Net price

Price after tax

divided by

1.175

= Price before tax

More about the 2010 June Budget

15% (from 1st December 2008 - 31st Decemeber 2009)

If we assume that VAT is at a rate of 15%...

Gross price

divided by

1.15

= Net price

Price after tax

divided by

1.15

= Price before tax

or in fractional form

Price after tax

divided by

23/20

= Price before tax

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

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 ...

Gross price

divided by

1.15

= Net price

Price after tax

divided by

1.15

= Price before tax

E.g :

     

£115.00

divided by

1.15

= £100

£115.00 inc Tax

 

 

= £100 + Tax

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.



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