By Shamayun Chowdhury, Senior Accountant, Major Accountancy · Published: 29 October 2026 · Last reviewed: October 2026 · Applies to UK VAT rates for 2026/27
Including VAT means the price you see already contains Value Added Tax, so it is the full amount you pay. At the standard 20% rate, one-sixth of an inc-VAT price is VAT. A £120 price including VAT is £100 for the item plus £20 VAT. A price “excluding VAT” or “plus VAT” will cost 20% more at the till.
You see “inc VAT” on receipts, websites and quotes every day, but it is easy to misread. Get it wrong as a buyer and you budget too little. Get it wrong as a seller and you can give away a sixth of your income without noticing.
This guide answers “what does including VAT mean?” in plain English, then goes further. It shows how to pull the VAT out of a price correctly, the mistake most people make, how the term affects VAT-registered and unregistered businesses, and the 2025 rules on how prices must be shown to customers.
- Inc VAT, VAT-inclusive and gross all mean the same thing: the full price.
- To find the VAT in a 20% inc-VAT price, divide by 6. Do not take 20% off.
- Total prices shown to consumers must include VAT and mandatory charges.
- On business quotes and contracts, say clearly whether VAT is extra.
What Does Including VAT Mean?
When a price says “including VAT”, the seller has already added the tax. Nothing more is added at checkout, and the figure is the total you hand over. For most goods and services in the UK, the VAT inside that price is charged at the standard rate of 20%.
People also ask “what does inclusive of VAT mean?” or “what does inc VAT mean?”. The answer is identical, because the wording changes but the price does not.
Inc VAT, gross price and VAT-inclusive are the same
Accountants call this the gross price. Shops write “inc VAT” or “incl. VAT”. Invoices often say “total including VAT”. All of them describe one number: the price after tax. The figure before tax is the net price.
What does including VAT mean on a receipt?
Almost every price aimed at the public, from supermarket shelves and online checkouts to hotel rooms and train tickets, includes VAT. Business suppliers such as wholesalers, software firms and trade counters often show prices excluding VAT instead, because their customers can usually reclaim it.
Including vs Excluding VAT: Every Term Explained
Ask ten people what does including VAT mean and what does net of VAT mean, and several will mix them up. The confusion usually comes from the number of different labels. This table puts them side by side, including three that are often mixed up: zero-rated, exempt and outside the scope.
| Term on the price | What it means | £100 item at 20% |
|---|---|---|
| Inc VAT / VAT-inclusive / gross | VAT is already in the price | You pay £120 |
| Ex VAT / excluding VAT / net | VAT will be added on top | Shown £100, you pay £120 |
| Plus VAT / + VAT | Same as excluding VAT | Shown £100, you pay £120 |
| Net of VAT | The amount with VAT taken out | £100 |
| Zero-rated (0%) | VAT applies, but the rate is nil | You pay £100 |
| Exempt | No VAT is charged, such as on insurance | You pay £100 |
| Outside the scope | Not part of the VAT system, such as wages or donations | You pay £100 |
The last three look the same to a shopper, but they matter to a business. A seller of zero-rated goods can still reclaim VAT on its costs, while a seller of exempt services usually cannot.
How to Work Out VAT From a Price That Includes VAT
Once you know what including VAT means, the next question is usually how much of the price is tax. There is a simple fraction for each rate.
The 1/6 rule for 20% and the 1/21 rule for 5%
VAT specialists Ross Martin set out the VAT fraction for each rate. At 20%, the VAT is one-sixth of the gross price. At the 5% reduced rate, it is one twenty-first.
- 20%: VAT = gross ÷ 6. Net = gross ÷ 1.2.
- 5%: VAT = gross ÷ 21. Net = gross ÷ 1.05.
The mistake most people make: taking 20% off
It feels natural to knock 20% off a gross price to find the net figure. It gives the wrong answer, because the 20% was added to the net price, not the gross price.
Wrong: £120 × 20% = £24 VAT, so net £96.
Right: £120 ÷ 6 = £20 VAT, so net £100.
Check: £100 + 20% = £120. The wrong method understates your income by £4 on every £120, and on £60,000 of sales it would misstate the VAT by £2,000.
Use this ready reckoner for common amounts.
| Price including VAT | Rate | Net price | VAT inside |
|---|---|---|---|
| £12 | 20% | £10.00 | £2.00 |
| £60 | 20% | £50.00 | £10.00 |
| £120 | 20% | £100.00 | £20.00 |
| £600 | 20% | £500.00 | £100.00 |
| £1,200 | 20% | £1,000.00 | £200.00 |
| £105 | 5% | £100.00 | £5.00 |
| £210 | 5% | £200.00 | £10.00 |
How to Add VAT to a Price That Excludes It
If including VAT means the tax is already in, excluding VAT means it is still to come. Going the other way is simpler. Multiply the net price by 1.2 for the standard rate or 1.05 for the reduced rate. A £250 quote “plus VAT” becomes £300. A £40 energy bill at 5% becomes £42. For a zero-rated item, the price stays the same.
Rounding matters on invoices with many lines. Work out VAT on each line or on the invoice total, use one method consistently, and round to the nearest penny. Small rounding differences are normal and not a sign of error.
What Does Including VAT Mean for Your Business?
For a shopper, the answer to “what does including VAT mean?” is simply “this is what I pay”. For a business owner, it depends on whether you are registered for VAT.
VAT-registered: the VAT is not your money
If you are registered and sell something for £120 including VAT, only £100 is income. The other £20 is collected for HMRC and paid over on your VAT return. On the buying side, a £120 inc-VAT purchase usually costs your business just £100, because you can reclaim the VAT on business purchases, subject to the usual rules.
Not VAT-registered: your price is the whole price
A business below the registration threshold cannot charge VAT, so it has no VAT to add or remove. Its £100 price is £100, and the VAT it pays on supplies is a real cost. That changes once you pass the £90,000 VAT registration threshold. GOV.UK sets out two separate tests for compulsory registration:
- Looking back: your taxable turnover for the last 12 months goes over £90,000. You must register within 30 days of the end of the month in which you crossed it.
- Looking forward: you expect taxable turnover to go over £90,000 in the next 30 days alone, for example because a single large contract is about to land. You must register by the end of that 30-day period.
You can also register voluntarily below the threshold. That can make sense if most of your customers are VAT-registered businesses, because they can reclaim the VAT you charge while you reclaim VAT on your own costs. It is also why an unregistered tradesperson’s quote can look a sixth cheaper than a registered competitor’s for the same work.
Flat Rate Scheme users
Under the Flat Rate Scheme, you still charge customers VAT at the normal rate, but you pay HMRC a fixed percentage of your VAT-inclusive turnover. Mixing up gross and net figures here leads straight to the wrong payment, so read our guide to the VAT Flat Rate Scheme before you join.
Showing Prices to Customers: The 2025 Rules
For retailers, “what does including VAT mean?” is also a legal question. The consumer protection rules in the Digital Markets, Competition and Consumers Act 2024 have applied since 6 April 2025.
The Competition and Markets Authority’s price transparency guidance (CMA209) says the total price shown to consumers must include all mandatory charges, and that a trader selling to the public must always include VAT in the total price. Taxes of ownership, such as vehicle tax or council tax, are not part of the price.
Business customers are treated differently. The same guidance accepts VAT-exclusive price lists for trade customers, so a B2B quote can show the price excluding VAT, provided it is clearly labelled and it is obvious VAT will be added. There is no general rule that every price must show both figures.
The CMA can fine businesses that break the consumer rules, as Charles Russell Speechlys notes, by up to the higher of £300,000 or 10% of worldwide turnover.
| Who you sell to | Price to show | Good practice |
|---|---|---|
| Consumers | Total price including VAT and all mandatory charges | Show one clear total from the first page |
| Businesses | Ex-VAT price is acceptable | Label it clearly, such as “ex VAT” or “+ VAT at 20%” |
| Trade and public | Inc-VAT prices for anything aimed at consumers | Keep a separate, clearly marked trade price list |
Quotes, Contracts and Invoices: Make VAT Clear
In a contract, what does including VAT mean if nobody wrote it down? There is no single answer for every contract. The result depends on the wording, what the parties agreed or implied, and the wider legal context.
The risk is real, though. In E-Nik Ltd v Department for Communities and Local Government [2012] EWHC 3027 (Comm), the High Court found no express or implied agreement that VAT would be paid on top of the agreed fees, despite the supplier’s invoicing practice. CMS’s commentary on the case concludes that silence on VAT can leave a supplier with the inclusive price. If a contract is unclear, take legal advice rather than assume either way.
Full VAT invoice vs simplified invoice
A full VAT invoice to a business customer normally shows your name, address and VAT number, an invoice number and date, the time of supply, the customer’s details, a description of the goods or services, the net amount, the VAT rate and the VAT charged, and the total. HMRC’s VAT Guide (Notice 700) sets out the detail.
Not every sale needs all of that. Retailers can, in qualifying circumstances, issue a simplified invoice where the total including VAT is £250 or less. It needs less information, typically your details and VAT number, the date, a description, the VAT rate and the total including VAT, without a separate VAT figure. If a customer asks for a full VAT invoice, or the sale is over £250, issue the full version.
Quick Checklist Before You Price or Pay
- Check whether the price says inc VAT, ex VAT or nothing at all.
- Divide by 6, not by 5, to find the VAT in a 20% gross price.
- Confirm the rate: 20%, 5% or 0%.
- If you sell to consumers, show the total price including VAT and mandatory charges.
- State clearly on business quotes and contracts whether VAT is included or added.
- Record net, VAT and gross separately in your bookkeeping.
The error I see most often is a newly registered business keeping its old prices. Those prices now include VAT whether the owner intended it or not, so income falls by a sixth overnight. When you register, decide straight away whether to raise prices by 20% or absorb the VAT, and do the sums both ways. — Shamayun Chowdhury
Frequently Asked Questions
What does including VAT mean on a price?
It means the tax is already in the figure, so it is the full amount you pay. At 20%, one-sixth of it is VAT.
Does inc VAT mean VAT is already added?
Yes. Nothing extra is added at checkout, although delivery or optional extras you choose may be charged separately.
Is a net price with or without VAT?
Without. The net price is the amount before VAT. Add 20% to a standard-rated net price to get the gross, VAT-inclusive figure.
Does “plus VAT” mean including VAT?
No, the opposite. “Plus VAT” means VAT will be added on top, so a £100 + VAT price costs £120 at the standard rate.
Do I pay VAT if the seller is not VAT registered?
No. An unregistered seller cannot charge VAT, so the price you are quoted is the full price and there is no VAT to reclaim.
How do I remove VAT from a price?
Divide a 20% VAT-inclusive price by 1.2 to get the net price, or divide it by 6 to find the VAT. At 5%, divide by 1.05 or by 21.
The Bottom Line on Prices Including VAT
So what does including VAT mean? It means the price is final, with one-sixth of it going to HMRC at the standard rate. Divide by 6 to find the tax, show consumers the total price including VAT, and label business quotes clearly. Those three habits prevent most VAT pricing mistakes.