Guide
VAT Inclusive vs VAT Exclusive
A plain-English UK guide. Learn the difference, see net vs gross examples and know which one to use in your pricing.
The simple difference
- VAT inclusive (gross): the price already contains VAT.
- VAT exclusive (net): the price is before VAT — VAT is added on top.
Same product, two ways of quoting:
Net (exclusive): £100 + 20% VAT = £120
Gross (inclusive): £120, of which £20 is VAT
Net vs gross examples
Service quoted exclusive
A web developer quotes "£2,000 + VAT" to another business. The invoice will read:
Net: £2,000
VAT @ 20%: £400
Gross (what the client pays): £2,400
Retail price shown inclusive
A shop lists a mug at £18. That's the price the customer pays:
Gross: £18.00
Net: £18 ÷ 1.20 = £15.00
VAT element: £3.00
When businesses use each
Use VAT inclusive (gross) for:
- Consumer-facing shops (ecommerce, retail, hospitality)
- Menus, shelf prices and marketing aimed at the public
- Any UK price shown to the general public — by law it should include VAT
Use VAT exclusive (net) for:
- B2B quotes and proposals where the client is VAT registered
- Trade and wholesale pricing
- Internal cost analysis, margin calculations and forecasts
Pricing implications
Mixing the two up has real consequences:
- Quoting net to a consumer: If you say "£100" to a member of the public and then try to add VAT, you'll likely have to absorb the £16.67 of VAT and only keep £83.33.
- Quoting gross to a business: A VAT-registered buyer expects net prices. Quoting gross can make you look more expensive than competitors.
- Margin maths: Always calculate margin on net (ex-VAT) figures. VAT is not yours — it's HMRC's.
Switch instantly
Use the VAT Calculator to flip between inclusive and exclusive at 20%, 5% or 0%. When you're ready to bill, drop the figures into the Invoice Generator — it handles the net / VAT / gross split for you. For the formulas, see How to Add and Remove VAT.
Frequently asked questions
What does VAT inclusive mean?
VAT inclusive means the price you see already contains VAT. For example, £120 inclusive of 20% VAT is £100 net + £20 VAT.What does VAT exclusive mean?
VAT exclusive means the price is shown before VAT is added. A £100 exclusive price becomes £120 once 20% VAT is added.When should I quote prices VAT inclusive?
When selling to consumers (B2C). UK consumer prices must usually be shown VAT inclusive so the customer sees the actual amount they'll pay.When should I quote prices VAT exclusive?
When selling to other VAT-registered businesses (B2B). The buyer normally reclaims the VAT, so trade prices are usually quoted net (exclusive).How do I switch between the two?
Add VAT: net × 1.20 = gross. Remove VAT: gross ÷ 1.20 = net. Use the VAT Calculator to switch instantly.