Finance
VAT & Gross Margin Calculator
Add VAT to a net price or strip it out of a gross price, then check your gross margin and markup against cost.
- Net (ex VAT)
- £100.00
- VAT at 20%
- £20.00
- Gross (inc VAT)
- £120.00
- Profit per unit
- £60.00
- Gross margin
- 60.0%
- Markup on cost
- 150.0%
How to add and remove VAT
Adding VAT: gross = net × (1 + rate). At the standard 20% rate, multiply by 1.2.
Removing VAT: net = gross ÷ (1 + rate). A common mistake is taking 20% off the gross price — that gives the wrong answer, because VAT is calculated on the net, not the gross. £120 including VAT is £100 net, not £96.
Margin vs markup — they're not the same
Gross margin is profit as a percentage of the selling price (ex VAT): (net − cost) ÷ net. Markup is profit as a percentage of cost: (net − cost) ÷ cost. A 50% markup is only a 33.3% margin. Quoting one when you mean the other is a classic pricing error.
UK VAT rates at a glance
| Rate | Applies to | Multiply net by | Divide gross by |
|---|---|---|---|
| 20% standard | Most goods and services | 1.20 | 1.20 |
| 5% reduced | Home energy, child car seats, some renovations | 1.05 | 1.05 |
| 0% zero-rated | Most food, books, children's clothing | 1.00 | 1.00 |
| Exempt | Insurance, education, some finance | No VAT charged | — |
Worked example
You buy a product for £40 and sell it for £100 ex VAT. The customer pays £120 (100 × 1.2). Your profit is £60, your margin is 60 ÷ 100 = 60%, and your markup is 60 ÷ 40 = 150%.