VAT (value-added tax) — called GST in some countries — is added to the price of most goods and services. If you run a business or check invoices, you constantly need to move between prices with and without it. There's one common trap.
Key terms
- Net price: the price without VAT.
- VAT amount: the tax itself.
- Gross price: the price with VAT — what the customer pays.
Adding VAT to a net price
Gross = net × (1 + rate ÷ 100)
At a 20% rate, a net price of 100 becomes 100 × 1.20 = 120. The VAT amount is 20.
Removing VAT from a gross price
Net = gross ÷ (1 + rate ÷ 100)
At 20%, a gross price of 120 becomes 120 ÷ 1.20 = 100.
The mistake to avoid
Don't take 20% off 120. That gives 96, which is wrong. The VAT is 20% of the net price (100), not of the gross price (120) — so it's one-sixth of the gross amount, not one-fifth. Always divide by 1.20.
Worked example
You're invoiced £180 including 20% VAT.
- Net price: 180 ÷ 1.20 = £150
- VAT: 180 − 150 = £30
Which rate should you use?
VAT rates depend on the country and often on the type of goods. Many places have a standard rate plus one or more reduced rates for items such as food, books or energy. Check with your local tax authority — this article uses 20% purely as an example.
Calculate it in seconds
The VAT Calculator adds or removes VAT at any rate, with buttons for common rates. It shows the net price, VAT amount and gross price together, so you can copy whichever you need.
VAT, GST and sales tax
The arithmetic is the same for GST. US sales tax works similarly but is normally added at the till on top of the listed price, so use the "add" calculation.
FAQ
How do I work out the VAT on a price that already includes VAT? Subtract the net price (gross ÷ 1 + rate) from the gross price, or multiply the gross by rate ÷ (100 + rate). At 20%, that's gross × 20 ÷ 120, or one-sixth of the gross.
Do I charge VAT on my invoices? That depends on your country and whether you're VAT-registered. Ask your tax authority or accountant.
Should prices be rounded before or after VAT? Rules vary. Many invoices calculate VAT per invoice total and round to the nearest cent.
Try it now
Open the free VAT Calculator to add or remove VAT instantly.
Related reading
Creating invoices? See How to Create a Professional Invoice. Browse the full blog for more guides.