How to calculate VAT: add it, remove it and check it
Adding VAT takes one multiplication. Removing it is where most people slip. Here is the method that always works, with numbers you can check.
Key takeaways
- To add VAT, multiply the net price by 1 plus the rate. At 20%, multiply by 1.2.
- To remove VAT, divide the gross price by 1 plus the rate. Never subtract the rate from the gross price.
- At a 20% rate, VAT is one sixth of the gross price, about 16.67%, not 20%.
What VAT is and who pays it
Value added tax is a tax on consumption. Businesses charge it on their sales, reclaim the VAT they paid on purchases, and send the difference to the tax authority. The end customer, who can't reclaim anything, carries the full cost. That is why shop prices for consumers usually include VAT, while prices between businesses are often quoted without it.
Every VAT calculation starts from the net price, the amount before tax. The tax is a percentage of that net price, and the gross price is the two added together.
How to add VAT to a price
Multiply the net price by the rate to get the VAT, then add it to the net price. You can do both steps at once by multiplying by 1 plus the rate as a decimal.
VAT = Net × Rate ÷ 100
Gross = Net × (1 + Rate ÷ 100)
A consultant bills 2,400 before tax at a 20% rate. The VAT is 2,400 × 0.20 = 480, and the gross invoice is 2,400 × 1.2 = 2,880. The chart below shows how the same 100 net price grows at different common rates.
- Net price
- VAT
Show the data
| VAT rate | Net price | VAT |
|---|---|---|
| 0% | 100 | 0 |
| 5% | 100 | 5 |
| 10% | 100 | 10 |
| 20% | 100 | 20 |
| 23% | 100 | 23 |
How to remove VAT from a gross price
When a receipt shows a price that already includes VAT, divide by 1 plus the rate. The result is the net price, and the difference is the VAT.
Net = Gross ÷ (1 + Rate ÷ 100)
VAT = Gross − Net
A laptop costs 1,440 including 20% VAT. Divide by 1.2 to get a net price of 1,200. The VAT inside the price is 240.
The most common VAT mistake
Many people take the rate straight off the gross price. On the laptop, 20% of 1,440 is 288, which gives a net price of 1,152. That is 48 too low. The error happens because VAT was calculated on the net price, so it makes up a smaller share of the gross price than the rate suggests.
The share of VAT inside a gross price is Rate ÷ (100 + Rate). At 20%, that is 20 ÷ 120, or 16.67%. The higher the rate, the bigger the gap, as the next chart shows.
- VAT rate
- Share of gross price
Show the data
| Rate | VAT rate | Share of gross price |
|---|---|---|
| 5% | 5% | 4.76% |
| 10% | 10% | 9.09% |
| 20% | 20% | 16.67% |
| 21% | 21% | 17.36% |
| 23% | 23% | 18.7% |
This is also why a quick way to find the VAT in a 20% gross price is to divide by 6, and in a 5% price, to divide by 21.
VAT on invoices with withholding or surcharges
Freelancers in some countries have income tax withheld by their clients. The withholding is calculated on the net amount and subtracted from the invoice total, but it never changes the VAT. On a 1,000 net invoice with 21% VAT and 15% withholding, the client pays 1,000 + 210 − 150 = 1,060 to the freelancer and sends 150 to the tax office.
Some suppliers must also add an equivalence surcharge when selling to small retailers. Like VAT, it is a percentage of the net amount and is added on top. The VAT calculator handles both, so you can check an invoice before you send it.
Three quick examples
A restaurant bill of 55 including 10% VAT has a net value of 55 ÷ 1.1 = 50, so the VAT is 5. A book priced at 21 with 5% VAT is worth 20 before tax, with 1 of VAT. A software licence costing 369 including 23% VAT has a net price of 300 and 69 of VAT. In each case, dividing gives a clean result, which is a good sign the calculation is right.
Rounding and discounts
Apply discounts to the net price first, then add VAT. A 10% discount on a 500 net item leaves 450, and 20% VAT brings it to 540. Round VAT to two decimal places on each invoice line or on the invoice total, following your local rules, and stay consistent so your records add up.
A quick checklist before you file
- Confirm the correct rate. Food, books, transport and energy often have reduced rates.
- Check whether the price you were given is net or gross.
- Remove VAT by dividing, never by subtracting the rate.
- Keep net, VAT and gross figures separate in your records.
Rates and rules change, so check your tax authority's website before submitting a return. For quick checks, the calculator shows every line of the breakdown as you type.
Work out your own numbers
Add or remove VAT, with withholding and equivalence surcharge.
Open the VAT calculatorFrequently asked questions
What is the formula to calculate VAT?
VAT equals the net price multiplied by the rate divided by 100. Add it to the net price to get the gross price.
How do I calculate VAT backwards from a total?
Divide the total by 1 plus the rate. For 20% VAT, divide by 1.2 to get the net price.
Why is 20% VAT not 20% of the total price?
Because it is charged on the net price. Inside a gross price, 20% VAT is only one sixth, about 16.67%.
Is VAT charged before or after discounts?
After. Take the discount off the net price, then add VAT to the discounted amount.
Does income tax withholding change the VAT?
No. Withholding is subtracted from the invoice total, but VAT is still calculated on the full net amount.