Value Added Tax, (VAT).
Calculator guide

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).

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

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

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...

Gross price

divided by

1.025

= Net price

Price after tax

divided by

1.025

= Price before tax

E.g :

     

£102.50

divided by

1.025

= £100

£102.50 inc Tax

 

 

= £100 + Tax


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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