Value added tax (V.A.T) is the tax added to everything we buy (except certain categories like fresh food and books). It is set at 17.5% of the cost of the item.  Commercial companies don't have to pay VAT. In fact, they do pay it, but then claim it back from the tax office. However, if they sell something, they then have to charge VAT. They don't get to keep it though. They send it on to the tax office.
The effect of this is that if we set a convenient price to sell something for (say a nice round number like £10) we then have to take off the VAT to find out how much we actually get to keep (and that won't be a nice round number!) This is how it works:
You know that 10% is the same as 0.10 i.e. 0.1
(That is 10 ÷ 100 = 0.1)
So, 17.5% is 17.5 ÷ 100 = 0.175.
With a calculator we can then work out the VAT on anything.
For example, the VAT on £25 would be 25 x 0.175 = 4.375
That is £4.38 to the nearest penny.  So, 17.5% is 17.5 ÷ 100 = 0.175.
With a calculator we can then work out the VAT on anything.
For example, the VAT on £25 would be 25 x 0.175 = 4.375
That is £4.38 to the nearest penny.
If we want to work out the price with the VAT added, then we want:
Price x 1 + Price x 0.175
On our £25 example that would be:
25 x 1 + 25 x 0.175 = 25 + 4.38 = £29.38
All in one go, we can do Price x 1.175
25 x 1.175 = 29.375 or £29.38 to the nearest penny. Check it both ways with your calculator to see that you agree it turns out the same. Now comes the clever bit.
We get the price with VAT included using x 1.175.
So, if we want to undo this process, starting with the VAT inclusive price and working out the price without VAT, we just do the opposite.
i.e. our calculation will be ÷ 1.175. You can check it with our earlier example.
Including VAT the price was £29.38.
So without VAT it should be: 29.38 ÷ 1.175 = 25.00425...
That is £25 to the nearest penny. Have a look at some ways of working out VAT
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