How to Calculate VAT: Adding It and Removing It from a Price

Adding VAT is easy. Taking it back out of a price that already includes it is where most people slip. This guide gives you the two formulas, worked examples, and the mistake to avoid.

Net, gross and VAT

Three numbers are in play, and confusion about which is which causes most errors:

• Net (or exclusive) is the price before VAT.
• VAT is the tax amount.
• Gross (or inclusive) is what the customer pays: net + VAT.

VAT (value-added tax) is charged as a percentage of the net price. Countries call it different things — GST in Australia, Canada and India, MwSt in Germany, TVA in France, IVA in Spain and Italy — and set their own rates. The US doesn't have VAT; it has state and local sales tax, which is added at the till and calculated the same way as the "add VAT" formula below.

Adding VAT to a net price

Multiply the net price by 1 plus the rate as a decimal.

Gross = Net × (1 + rate)

Example: a service costs €250 before tax and the rate is 20%. Gross = 250 × 1.20 = €300. The VAT is €50.

Removing VAT from a gross price

Divide the gross price by 1 plus the rate. This is the step people get wrong.

Net = Gross ÷ (1 + rate) and VAT = Gross − Net

Example: a receipt shows €120 including 20% VAT. Net = 120 ÷ 1.20 = €100. VAT = 120 − 100 = €20.

The classic mistake

It's tempting to take 20% off €120 to get the net price. That gives €96, and is wrong. The 20% VAT was calculated on the net price (€100), not on the gross. So VAT is 20/120, which is one sixth of the gross, not one fifth.

A handy shortcut: for a rate of r%, the VAT contained in a gross price is gross × r ÷ (100 + r). At 20% that is gross × 20/120; at 19% it is gross × 19/119; at 21% it is gross × 21/121.

Typical standard rates

These are common standard rates at the time of writing, for orientation only. Rates change, and many countries also have reduced rates for food, books, transport or energy, so check with the tax authority before relying on them for filings.

• United Kingdom: 20%
• France: 20%
• Germany: 19%
• Spain: 21%
• Italy: 22%
• Netherlands: 21%
• Ireland: 23%
• Australia (GST): 10%
• Canada (GST): 5% federal, plus provincial taxes in many provinces

Where you'd actually use this

• Freelancers and small businesses quoting a client net and showing VAT separately on the invoice.
• Expense claims where the receipt shows only the gross and you need the reclaimable VAT figure.
• Comparing prices between shops that show prices with and without tax.
• Reverse-engineering a discount. If a sale price includes VAT, remove it first, then compare like with like.

Rounding

Calculate VAT to the cent and round to two decimals. On an invoice with many lines, tax authorities usually let you compute VAT either per line or on the invoice total, but you should apply one method consistently. The two can differ by a cent or two because of rounding.

Frequently asked questions

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