Everyday Maths glossary

What is VAT?

VAT is a tax added to many goods and services in the UK. It affects invoice totals, receipts, business costs and the difference between net and gross prices.

VAT Everyday maths term Updated 20 June 2026

VAT stands for Value Added Tax. It is a tax charged on many goods and services sold by VAT-registered businesses in the UK.

In everyday maths, VAT usually means working out whether a price is VAT-inclusive or VAT-exclusive, how much VAT is included, and what the net or gross total should be.

Gross price Net price Percentage Rounding

UK VAT rates

The main UK VAT rates are 20% standard rate, 5% reduced rate and 0% zero rate. Some goods and services can also be exempt or outside the scope of VAT, so the correct VAT treatment depends on what is being sold.

VAT rate	Common wording	What it means in a calculation
20%	Standard rate	Add 20p VAT for every £1 of net price.
5%	Reduced rate	Add 5p VAT for every £1 of net price.
0%	Zero rate	VAT is charged at 0%, but the sale may still be VAT-taxable.

For quick sums, the most common rate people use in UK invoices and receipts is 20%.

Net price, VAT amount and gross price

VAT calculations usually use three amounts:

Net price: the price before VAT is added.
VAT amount: the tax added on top of the net price.
Gross price: the final VAT-inclusive price paid by the customer.

Net £100

VAT at 20% £20

Gross £120

How to add VAT

To add VAT, multiply the net price by the VAT rate, then add the VAT amount to the net price.

VAT amount = net price × VAT rate
Gross price = net price + VAT amount

At 20%:
Gross price = net price × 1.20

For example, £100 plus 20% VAT is £100 × 1.20 = £120.

Add or remove VAT quickly

Use the VAT calculator for 20%, 5%, 0% or custom VAT rates.

Open VAT calculator

How to remove VAT

To remove VAT from a VAT-inclusive gross price, divide by the VAT multiplier. At 20%, the multiplier is 1.20.

Net price = gross price ÷ (1 + VAT rate)
VAT amount = gross price − net price

At 20%:
Net price = gross price ÷ 1.20

Common mistake: removing 20% VAT from £120 is not £120 − 20%. The correct net price is £120 ÷ 1.20 = £100.

VAT-inclusive vs VAT-exclusive

A VAT-inclusive price already contains VAT. A VAT-exclusive price does not include VAT yet.

Price wording	Meaning	Example at 20%
£100 + VAT	VAT-exclusive	Customer pays £120.
£120 inc VAT	VAT-inclusive	Net price is £100 and VAT is £20.
VAT exempt	Not the same as zero-rated	VAT treatment depends on the supply.

Common VAT calculation mistakes

Subtracting 20% from a gross price instead of dividing by 1.20.
Mixing up VAT-inclusive and VAT-exclusive prices.
Assuming every item uses the standard 20% rate.
Confusing zero-rated VAT with VAT-exempt supplies.
Rounding each line too early instead of checking the final invoice total.

For business or tax decisions, always check the correct VAT treatment for the goods or services involved.

VAT FAQs

What does VAT stand for?

VAT stands for Value Added Tax. It is charged on many goods and services supplied by VAT-registered businesses.

What is the standard UK VAT rate?

The standard UK VAT rate is 20%. There are also reduced and zero rates for some goods and services.

How do you remove 20% VAT?

Divide the VAT-inclusive gross price by 1.20. For example, £120 including 20% VAT has a net price of £100 and VAT of £20.

Is zero-rated the same as exempt?

No. Zero-rated supplies are VAT-taxable at 0%. Exempt supplies are treated differently for VAT purposes, so business owners should check the relevant GOV.UK guidance or speak to an accountant.