How to Calculate VAT: Adding and Removing VAT With Examples
Formulas for adding VAT to a net price and extracting it from a gross price, worked examples and the most common mistake.
Value Added Tax (VAT) is an indirect tax added to the price of goods and services. Whether you run a business or just shop, you will often need to do two things: add VAT to a net price, or take it out of a VAT-inclusive price.
Adding VAT to a net price
The formula is: gross price = net price × (1 + VAT rate). If the rate is given as a percentage, divide it by 100 first. For a 100 item with 20% VAT you pay 100 × 1.20 = 120. The extra 20 is the VAT.
Removing VAT from a gross price
Divide the gross price by (1 + rate): net price = gross price ÷ (1 + VAT rate). 120 ÷ 1.20 = 100 net, so the VAT amount is 120 − 100 = 20.
The most common mistake
Many people subtract 20% directly from 120: 120 × 0.80 = 96. That is wrong, because the 20% was calculated on the net amount, not on the gross one. Always divide by 1.20.
Which rate applies?
Rates differ by country and by type of product or service, and they change over time. Check your local tax authority before issuing an invoice. Our calculator works with any rate, you simply type it in.
Practical tips
- Show VAT as a separate line on invoices.
- Round only at the final step to avoid cent differences.
- Items with different rates should be calculated separately and then added up.
Try the VAT calculator: enter an amount and a rate and you will see both net and gross values instantly.