Net of VAT is the value of a product or service without the cost of VAT added to it.
There are 3 different VAT rates in the UK, with most UK goods and services having the standard VAT rate of 20%. For a product with a VAT-inclusive gross price of £120, the Net of VAT amount would be £100 and the VAT would be £20.
This amount is also known as VAT exclusive as it does not include the VAT.
How To Calculate The Net Of VAT
To calculate VAT, you use the current VAT tax rate as a percentage of the net price and add this figure to create the gross amount. To find the net amount, you must reverse this.
If you have a figure that is VAT inclusive (gross price), you can divide it by 1 + VAT rate. When the VAT rate is 20% the figure you use to divide the original amount would be 1.20.
You should then subtract this number from the original. For example:
- Vat inclusive figure – £120.00
- Divide by 1.2 = 100
- The original figure of 120 – 100 = 20
What Is VAT?
Value Added Tax (VAT) is a sales tax that is included in the price of a product or service. It is also referred to as a consumption tax as it is paid by the consumer.
You can learn more about VAT and how it works by visiting the Government website.
What Is A VAT-Registered Business?
Responsibilities Of A VAT-Registered Business
VAT-registered businesses have a range of responsibilities that include:
- Adding the correct rate of VAT to services and goods
- Maintaining VAT records on business purchases
- Account for VAT imports
- Report the VAT you have charged customers to HMRC
- Report the VAT you pay to other businesses to HMRC
- Pay VAT owed to HMRC
Reporting VAT to HMRC is done by completing a VAT return and sending it to HMRC.
VAT returns should be completed every 3 months The deadline for submitting a VAT return is one month and 7 days after the accounting period ends.
Do I have to send a VAT return to HMRC if there is no VAT to reclaim or pay?
You still have to file a VAT return to HMRC even if there is nothing to pay or claim.
What happens if you have charged less VAT than you have paid?
HMRC will typically repay the difference if you have paid more VAT on purchases than you have charged customers.
Your VAT repayment amount will be shown on your VAT return.
Is VAT paid on everything?
Some goods and services are exempt from VAT. This includes children’s clothing and food.
The “Net of VAT” is the price excluding VAT of a product or service. The current VAT rate for most products is 20%.
VAT returns must be completed on a quarterly basis. Hiring an accountant to ensure your figures are accurate and filed on time can help to save you money by determining whether a VAT refund is due.