Gross vs. Net: Calculating Inclusive and Exclusive VAT

Net vs Gross: The Core Difference

• Net = price before VAT is added
• Gross = price after VAT is added (the total customer pays)

The Formulas

Adding VAT to a Net Price (most common)

Net × 1.2 = Gross (for 20% VAT)

• Net: £100
• Gross: £100 × 1.2 = £120
• VAT: £20

Removing VAT from a Gross Price

Gross ÷ 1.2 = Net (for 20% VAT)

• Gross: £120
• Net: £120 ÷ 1.2 = £100
• VAT: £20

For Other VAT Rates

• 5% VAT: multiply/divide by 1.05
• 0% VAT: no calculation needed (gross = net)

On Your Invoice

Always show both net and gross on VAT invoices:

Service (net): £1,000
VAT @ 20%: £200
Total (gross): £1,200

Common Mistake: Invoice Rounding

If you have multiple line items:

• ❌ Calculate VAT on each line, then round each
• ✅ Calculate VAT on the total, then show final amount

Otherwise you end up with pence discrepancies.