Table of Contents
- Introduction
- What Is a VAT Exclusive Price?
- What Is a VAT Inclusive Price?
- VAT Inclusive vs Exclusive: Key Differences
- How to Convert VAT Exclusive to VAT Inclusive
- How to Convert VAT Inclusive to VAT Exclusive
- When Are Inclusive and Exclusive Prices Used?
- Does This Change by Country?
- External Reference
- Frequently Asked Questions
- Key Takeaways
Introduction
Prices can be shown either including VAT or excluding VAT, and misunderstanding the difference can lead to incorrect calculations, pricing errors, or confusion when reading invoices. Whether you are a consumer comparing prices or a business issuing invoices, knowing how VAT-inclusive and VAT-exclusive prices work is essential.
This guide explains VAT inclusive vs VAT exclusive pricing in simple terms, shows how to calculate each correctly, and highlights when you are most likely to encounter them. The concept is the same worldwide, even though VAT rates vary by country.
In the UK, VAT-inclusive and VAT-exclusive prices are based on the standard 20% UK VAT rate, as defined by HMRC.
What Is a VAT Exclusive Price?
A VAT exclusive price is the price before VAT is added.
- Common in B2B transactions
- VAT is calculated separately
- Final price is higher once VAT is added
Example:
- Net price: 100
- VAT rate: 20%
- VAT amount: 20
- Final price: 120
Learn the full formula here: VAT Calculation Formula
What Is a VAT Inclusive Price?
A VAT inclusive price already includes VAT in the displayed amount.
- Common for consumers
- Final price is shown upfront
- VAT must be extracted if needed
Example:
- Final price shown: 120
- VAT rate: 20%
- Net price: 100
See how to calculate this correctly: Remove VAT from Price
VAT Inclusive vs Exclusive: Key Differences
| Feature | VAT Exclusive | VAT Inclusive |
|---|---|---|
| VAT included? | No | Yes |
| Common for | Businesses | Consumers |
| Calculation | VAT added | VAT extracted |
| Displayed price | Lower | Final |
Understanding this difference avoids pricing and reporting mistakes.
How to Convert VAT Exclusive to VAT Inclusive
Use this formula when VAT is not included:
Final price = Net price × (1 + VAT rate)
Full explanation: How VAT Works
How to Convert VAT Inclusive to VAT Exclusive
Use this formula when VAT is already included:
Net price = Final price ÷ (1 + VAT rate)
Step-by-step guide: Calculate VAT Backwards
When Are Inclusive and Exclusive Prices Used?
- Inclusive prices: Shops, online stores, consumer invoices
- Exclusive prices: Business invoices, quotes, contracts
Knowing which price type you’re seeing prevents misunderstandings.
Does This Change by Country?
The pricing concept stays the same, but:
- VAT rates differ
- Display rules vary
Use country-specific calculators for accuracy:
External Reference
For official guidance on VAT- inclusive pricing, see:
European Commission – VAT Basics
Frequently Asked Questions
Is VAT usually shown inclusive or exclusive?
Consumers usually see VAT-inclusive prices, while businesses often quote VAT-exclusive prices.
Can I subtract VAT from an inclusive price?
No. You must divide by (1 + VAT rate).
Does inclusive vs exclusive pricing affect VAT owed?
No. It only affects how prices are displayed.
Key Takeaways
- VAT exclusive prices exclude tax
- VAT inclusive prices already include tax
- Different formulas apply to each
- The concept is global, rates vary