Business Tax

Reverse VAT calculator

Gross amount

VAT rate

Direction

Net amount 200

242 ÷ 1.21 · VAT fraction 21/121

VAT contained 42

Gross 242

VAT fraction 21/121

Rate 21 %

Gross × rate/(100+rate) = the VAT

Divide the gross by one plus the rate. A 242 total at 21% VAT is 200 net and 42 VAT. Subtracting 21% from 242 would give 191.18, which is wrong by nearly nine — a mistake that compounds across an expense claim.

How to reverse VAT

1 Enter the gross amount, including the tax.

2 Enter the rate that was applied.

3 Read the net amount and the VAT contained.

4 Cross-check with the VAT fraction: at 21%, VAT is 21/121 of the total.

The reason subtraction fails is that the percentage was applied to the smaller number. Twenty-one per cent of 200 is 42, but 21% of 242 is 50.82 — you would be removing tax on the tax. The VAT fraction sidesteps the arithmetic entirely: multiply the gross by 21/121 and you have the tax directly. At the UK 20% rate the fraction simplifies to a memorable 1/6, which is why British bookkeepers divide receipts by six in their heads.

Questions

How do I take VAT off a price? −

Divide by 1.21 at 21%, or by 1.20 at 20%. Never subtract the percentage from the gross.

What is 20% VAT as a fraction of the total? +

Why does subtracting the percentage not work? +

What is 21% VAT on a 242 total? +

Is this the same as the reverse charge? +

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