The most common VAT error is subtracting the rate instead of dividing by it. On a £120 invoice that is a £4 mistake, every time.
Why subtracting the rate is wrong
VAT is added to the net price. So the gross is the net plus a percentage of the net — not of the gross.
Take £100 net at 20%. VAT is £20, gross is £120. Now work backwards by subtracting 20% from £120: 20% of £120 is £24, giving £96. That is not where you started.
The error happens because 20% of the smaller number and 20% of the larger number are different amounts. The correct operation is division.
| Rate | Add VAT | Remove VAT | VAT portion of gross |
|---|---|---|---|
| 5% | × 1.05 | ÷ 1.05 | ÷ 21 |
| 7.7% | × 1.077 | ÷ 1.077 | × 0.0715 |
| 15% | × 1.15 | ÷ 1.15 | ÷ 7.667 |
| 19% | × 1.19 | ÷ 1.19 | × 0.1597 |
| 20% | × 1.2 | ÷ 1.2 | ÷ 6 |
| 21% | × 1.21 | ÷ 1.21 | × 0.1736 |
| 25% | × 1.25 | ÷ 1.25 | ÷ 5 |
The shortcuts in the last column are worth memorising for the rate you use most. At 20%, the VAT is simply the gross divided by six — £120 ÷ 6 = £20. At 25%, divide by five.
Rounding, and why totals disagree
VAT is calculated to two decimal places and rounded, and where you round changes the answer.
Rounding each line and then summing gives a different total from summing first and rounding once. On a twenty-line invoice the two can differ by several pence, which is enough for an accounting system to reject the document.
Most tax authorities permit either method but require consistency. UK HMRC allows line-level or invoice-level rounding as long as you do not switch between them to your advantage. The practical rule: pick one, apply it everywhere, and make sure your invoicing software agrees with your spreadsheet.
VAT-inclusive pricing
Consumer prices in the UK and EU must be shown inclusive of VAT, which means the round number the customer sees produces an awkward net figure behind it.
A £9.99 product at 20% is £8.325 net and £1.665 VAT. Neither is a real amount of money, so the rounding has to happen somewhere — and where depends on whether you price per unit or per line.
This is why business-to-business pricing is quoted excluding VAT and business-to-consumer pricing including it. B2B buyers reclaim the VAT so the net figure is their real cost; consumers cannot, so the gross is theirs.
Where the rate is not what you assume
A single national rate is the exception rather than the rule.
- Reduced rates apply to specific categories — domestic energy at 5% in the UK, many foods and books at reduced rates across the EU.
- Zero-rated is not the same as exempt. Zero-rated goods carry VAT at 0% and the seller can still reclaim input VAT. Exempt supplies carry no VAT and the seller cannot reclaim.
- Cross-border rules differ. Digital services to EU consumers are taxed at the customer's local rate, not the seller's.
- US sales tax is not VAT and behaves completely differently — it is added at the final sale only, varies by state, county and city, and is usually excluded from the shelf price.
The VAT Calculator covers the standard and reduced rates for the common jurisdictions and works in both directions, so you are not doing this arithmetic by hand on an expense claim.
Checking your own figures
Two sanity checks catch nearly every mistake.
First, the VAT should never be exactly the rate percentage of the gross. If your 20% VAT line is precisely 20% of the total, you subtracted instead of dividing.
Second, add the net and the VAT back together. If it does not return the gross to the penny, something rounded in the wrong place.
On a £120 gross at 20%, the correct answer is net £100 and VAT £20 — and the VAT is 16.67% of the gross, not 20%. That figure looking "wrong" is what the check is for.
Frequently asked questions
How do I remove 20% VAT from a total?
Divide by 1.2, do not subtract 20%. £120 gross ÷ 1.2 = £100 net, with £20 VAT. Subtracting 20% gives £96, which is wrong by £4, because the VAT was added to the net figure rather than the gross one.
What is the quick way to find the VAT in a gross price?
At 20%, divide the gross by six. At 25%, divide by five. At 5%, divide by 21. Those shortcuts come from the fact that the VAT portion of the gross is rate ÷ (100 + rate).
Why is the VAT not 20% of the total?
Because it is 20% of the net, not the gross. On a £120 total the £20 of VAT is 16.67% of the gross. If your VAT line is exactly 20% of the total, the calculation went the wrong way.
Should I round each line or the invoice total?
Either, but consistently. Rounding per line and then summing gives a different answer from summing first and rounding once, and on a long invoice the difference is enough for an accounting system to reject the document. Most authorities permit both methods but not switching between them.
Is zero-rated the same as VAT exempt?
No. Zero-rated goods are taxed at 0% and the seller can still reclaim input VAT on their costs. Exempt supplies carry no VAT and the seller cannot reclaim. The customer pays nothing either way, but the seller's position is very different.
Is US sales tax calculated the same way?
No. Sales tax applies only at the final sale, varies by state, county and city, and is normally excluded from the displayed price rather than included. VAT is collected at every stage of the chain with credits for tax already paid.