VAT - GCSE Maths Definition

VAT is an abbreviation for value added tax. This is a tax that is added to the cost of most goods and services. VAT goes to the government. For most goods and services, VAT is included in the price shown; however, some services, such as building work or landscaping, often quote costs without VAT. In the UK, the current rate of VAT is 20%; some products and services have a lower rate of VAT, or are exempt (no VAT). For example, in the UK, the VAT on domestic energy bills is 5%.

In GCSE Mathematics, you need to be able to find the price of goods or service once VAT is added; or the opposite - finding the price before VAT is added. Both are important for businesses that need to work out how much they need to charge customers and then how much of that they need to then pay to the government.

Finding the price of goods or services that do not have VAT included requires multiplying the given price by 1.2.
Finding the price of goods or services that have VAT included requires dividing the given price by 1.2.