How do you remove VAT (Value-added tax) from the sales price?
In most European countries the price that you pay at the till is the same as on the price tag in the store. You don’t need to do some mind twisting calculations to arrive at the final price that you need to pay. However, how do you find the price without VAT when you only have the end price?
Well, the easiest way is just to look at the receipt. But more often you will need to know that in a business context. Let’s say you work for a business and want to purchase goods and services from another company and your business partner gives only you the price estimate including VAT. For tax purposes, it is necessary to know the price without VAT. Then it is your job to figure out how much it would be.
As an easy example, I’m going to use a cup of coffee for GBP 1.50
Example: Solve for net amount without VAT (x).
We know that the final sales price of 1.50 (y) is calculated by adding the VAT (20%) to the net amount (x). We can write this as a mathematical term:
x (net amount) + 0.2x (20% tax) = y (sales price)
Now we just need to solve for x (price without VAT).
1.2x = y | divide by 1.2
x = y/1.2 –> x = 1.5/1.2 = 1.25
The price without VAT for the cup of coffee is GBP 1.25.
We can see that the formula is actually quite easy. We just need to divide the amount including VAT by the VAT. If you spend GBP 100 in a store, you will pay GBP 16.67 VAT while the store will receive GBP 83.33 if 20% VAT is applied.
If all this is too troublesome for you then you can use the calculator below. It will instantly give you the correct amount without VAT without using a calculator or pen and paper.