A VAT inclusive price already has VAT built into it. It is the full amount the customer pays. A VAT exclusive price is the amount before VAT, with the VAT added on top later.
Inclusive vs exclusive
- VAT inclusive: the price shown includes VAT. A £120 inclusive price holds £100 net and £20 VAT.
- VAT exclusive: the price shown is before VAT. A £100 exclusive price becomes £120 once 20% VAT is added.
| Label | What it means | Example |
|---|---|---|
| VAT inclusive | VAT already in the price | £120 total, £20 VAT inside |
| VAT exclusive | VAT added on top | £100 plus £20 VAT is £120 |
The rule on showing prices
If you sell to the public, prices must be shown VAT inclusive. A shopper should see the full price they will pay, with no VAT added at the till. This is why shelf prices in shops already include VAT.
If you sell business to business, you can show prices VAT exclusive, since the buyer can reclaim the VAT and often thinks in net terms. Many trade quotes are given exclusive of VAT for this reason.
[ Infographic: VAT inclusive vs exclusive ]
Brief: show the same £120 price, one labelled inclusive with VAT inside, one shown as £100 plus £20 added on top.
Alt text: A VAT inclusive price has VAT inside it, a VAT exclusive price adds VAT on top.
Caption: Inclusive prices already hold the VAT, exclusive prices add it later.
Finding the VAT inside an inclusive price
To split the VAT out of an inclusive price at 20%, divide by 1.2 to get the net amount. The VAT is the difference. At the standard rate, the VAT is one sixth of the inclusive price.
Example Inclusive price £120. £120 divided by 1.2 is £100 net. The VAT is £20, which is one sixth of £120.
Why clear labelling matters
Always say whether a price includes VAT. A customer who thinks a quote is inclusive can feel misled when VAT is added later. A clear label, such as price includes VAT or price excludes VAT, avoids disputes.
Frequently asked questions
What does VAT inclusive mean? It means the price already includes VAT. It is the full amount the customer pays.
What is the difference between VAT inclusive and exclusive? Inclusive prices already have VAT in them. Exclusive prices are before VAT, with VAT added on top.
Do shop prices include VAT? Yes. Prices shown to the public must include VAT, so shop prices are VAT inclusive.
How do I find the VAT in an inclusive price? Divide the inclusive price by 1.2 at the standard rate. The VAT is the difference, which is one sixth of the inclusive price.
Can I show business prices without VAT? Yes. For business to business sales you can show prices VAT exclusive, since the buyer can reclaim the VAT.