How to Calculate VAT on Purchases

If you’re making a purchase of a product or service, you might need to calculate the value of the VAT applied to whatever it is you’ve bought. This might be for your own personal tax affairs, or because your employer requires a breakdown of VAT so they’re able to offset this cost in their own accounts and ensure expenses records are up to date and accurate.

While the vast majority of businesses are able to provide a VAT receipt – they need them for their own records, too – some aren’t, or simply don’t do it. You also might need to work out the VAT that has been applied yourself if you forgot to ask for a VAT receipt.

Thankfully, working out the VAT is easy to do. Below are the calculations you need to do if you’re unable to attain a VAT receipt for whatever reason.

Standard Rate Calculation

The standard VAT rate is 20%. Therefore, to calculate the VAT has been applied to applicable purchases, you simply need to divide the total cost by 1.2.

For example, if you made a purchase of £120, dividing it by 1.2 would leave you with £100. A simple deduction of this number from £120 tells you the VAT applied as £20.

Reduced Rate Calculation

The reduced rate of VAT is 5%. To calculate the VAT has been applied to applicable items here, you divide the cost by 1.05.

If you made another purchase of £120, dividing this number by 1.05 leaves you with £114.29. Again, you deduct this from £120 to get to the VAT figure, in this case £5.71.

Adding VAT

If you need to add VAT onto a VAT exclusive price, you simply do the reverse calculation, and multiply the original figure by 1.2 or 1.05, depending on the applicable rate of VAT.