How to Deduct VAT
Value Added Tax (VAT) is a type of sales tax in Europe. When taxable goods are sold or taxable services are provided, the seller is required to collect the VAT and forward it to his country's taxation department. VAT has multiple rates. In the United Kingdom, there are three rates: the standard rate of 17.5 percent (set to increase to 20 percent on Jan. 4, 2011), the reduced rate of 5 percent and the zero rate.
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Instructions
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1
Find out the applicable VAT rate for your item. Her Majesty's Revenue and Customs (HMRC) keeps a list of VAT rates for different goods on services. (See the link in References.) Click on the link for the particular type of item you have to bring you to the VAT rates for that category. For example, clicking on "Sport, leisure, culture and antiques" brings you to a section where you can find out that nicotine patches are taxed at 5 percent.
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2
Convert the VAT rate found in Step 1 to a decimal and then add 1. For example, if the VAT rate for the item is 17.5 percent, then 17.5 converted to a decimal is 0.175 and 0.175 + 1 = 1.175.
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3
Divide the price of the item by the figure you calculated in Step 2. For example, if your item costs 117.50 pounds, then 117.50 / 1.175 = 100 pounds. This is the amount of the item, less the VAT.
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Tips & Warnings
If you want to find out the actual VAT on the item, deduct your answer from Step 3 from the item's price. In the above example, 117.50 - 100 = 17.50 pounds.
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