How to remove VAT from a price using a calculator.

This is pretty simple and I will keep it simple to start with and then go into more detail after that if that interests you.

I live in the UK and the VAT rate is 20%.

Type in the sale amount, for example, £24. Divide that by 1.2 and you get the answer, £20.

If you search Google for “Remove VAT calculator”, you will get lots of results, I tried http://www.vatcalculator.co.uk/ which works but it is much better to be able to do this on your calculator or even in your head. Neither is difficult. Now for more information.

Understanding the VAT Rate

The first step in removing VAT from a price is to know the VAT rate applicable in your country or region. VAT rates vary across different countries. For instance, the standard VAT rate in the UK is 20%, while many European countries have different rates, often ranging from 17% to 27%. The US generally have much lower rates but vary wildly from state to state.

Step-by-Step Guide to Remove VAT from a Price

Step 1: Convert the VAT Rate to Decimal

Convert the VAT percentage to a decimal by dividing it by 100. For example, if the VAT rate is 20%, you convert it to 0.20 (20 ÷ 100 = 0.20).

Step 2: Calculate the Gross Price Multiplier

The gross price multiplier is 1 plus the VAT rate as a decimal. Using our example of a 20% VAT rate, this would be 1 + 0.20 = 1.20.

Step 3: Divide the Gross Price by the Gross Price Multiplier

Take the total price of the item (the price including VAT) and divide it by the gross price multiplier. For example, if an item costs $120 including VAT, you would calculate $120 ÷ 1.20.

Step 4: Determine the Net Price

The result of the division is the net price, which is the price without VAT. In our example, £24 ÷ 1.20 = £20. This means the price of the item before VAT was added is £20.

Step 5: Calculate the VAT Amount

To find out how much VAT was included in the original price, subtract the net price from the gross price. In our example, £24 – £20 = £4. This is the amount of VAT that was added to the original price.

Practical Example

Let’s say you bought a laptop for £1,500, and the VAT rate is 20%. To calculate the price without VAT:

1. Convert VAT rate to decimal: 20% becomes 0.20.
2. Calculate the gross price multiplier: 1 + 0.20 = 1.20.
3. Divide the gross price by the gross price multiplier: £1,500 ÷ 1.20 = £1,250.
4. The net price (price without VAT) is £1,250.
5. The VAT amount is £1,500 – £1,250 = £250.

Conclusion

Removing VAT from a price is a straightforward process that can be easily done with a basic calculator. This skill is not only useful for business and accounting purposes but also helps consumers understand how much tax they are paying on their purchases. Remember, the key is to be aware of the applicable VAT rate and follow the simple steps outlined above.