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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).
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If we assume that VAT is at a rate of 17.5%...
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Gross price
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divided by
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1.175
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= Net
price
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Price after
tax
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divided by
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1.175
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= Price
before tax
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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
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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...
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Gross price
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divided by
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1.025
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= Net
price
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Price after
tax
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divided by
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1.025
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= Price
before tax
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E.g :
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£102.50
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divided by
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1.025
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= £100
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£102.50
inc Tax
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= £100
+ Tax
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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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