Whether you are sending an invoice, checking a supplier bill, or pricing a product, VAT maths comes down to two moves: adding tax to a net price, and stripping it back out of a gross price. This guide shows both formulas, works through a full example with real numbers, flags the mistake almost everyone makes when reversing VAT, and lists standard VAT rates by country.
VAT (Value Added Tax) is a consumption tax added to the price of most goods and services. Two figures matter for every calculation. The net price is the value before tax. The gross price is the net price with VAT added on top. VAT is always a percentage of the net price, and that single fact is the key to calculating it correctly in both directions.
Businesses act as tax collectors: they charge VAT on what they sell (output VAT) and reclaim the VAT they paid on business purchases (input VAT), handing the difference to the tax authority. The end consumer, who cannot reclaim anything, bears the final cost.
Adding VAT is the easy direction. Multiply the net price by 1 plus the VAT rate expressed as a decimal:
Gross price = Net price x (1 + VAT rate)
At 20%, multiply by 1.20. A £250 net invoice becomes £250 x 1.20 = £300 gross, and the VAT itself is £250 x 0.20 = £50.
At 15%, a $850 net price becomes $850 x 1.15 = $977.50 gross, with $127.50 of VAT.
Retail prices usually include VAT already, so you often need to work backwards. To remove VAT from a gross, VAT-inclusive price, divide by 1 plus the rate:
Net price = Gross price / (1 + VAT rate), then VAT = Gross price - Net price
At 20%, a £300 gross price becomes £300 / 1.20 = £250 net, so the VAT hidden inside is £50.
The mistake to avoid: never remove VAT by subtracting the rate from the gross price. Taking 20% off a £300 gross price gives £60, but the real VAT is only £50, because the 20% was added to the smaller £250 net figure, not the larger £300 gross figure. Always divide the gross price instead.
If you only need the VAT portion of a gross total, use the VAT fraction: VAT = Gross x rate / (1 + rate). At 20% this simplifies neatly, since 20/120 = 1/6, so you just divide the gross by 6: £300 / 6 = £50 of VAT. At 5%, divide the gross by 21.
Imagine a VAT-registered designer billing a client £1,200 for a project, plus £150 of stock images bought earlier (that £150 receipt already included VAT). Here is how the numbers flow:
The designer collected £240 from the client but remits only £215, paying tax purely on the value added. That is the whole idea behind the name Value Added Tax.
The method is identical everywhere; only the rate changes. Standard rates for common jurisdictions are below. Rates do change, and many countries apply reduced rates to essentials like food, books, and energy, so always confirm the current rate for your specific goods.
| Country | Standard rate | Notes |
|---|---|---|
| United Kingdom | 20% | Reduced 5%, zero-rated 0% |
| Ireland | 23% | Reduced 13.5% and 9% |
| France | 20% | Reduced 10%, 5.5%, 2.1% |
| Germany | 19% | Reduced 7% |
| Italy | 22% | Reduced 10%, 5%, 4% |
| Spain | 21% | Reduced 10% and 4% |
| Netherlands | 21% | Reduced 9% |
| UAE | 5% | Standard rate |
| Saudi Arabia | 15% | Standard rate |
| Australia (GST) | 10% | Called GST, same maths |
| Canada (GST) | 5% | Plus provincial taxes |
| Japan | 10% | Reduced 8% on food |
Some countries call it GST (Goods and Services Tax) instead of VAT, but the calculation method is identical.
VAT is collected in stages along the supply chain, with each business remitting tax only on the value it added, while US-style sales tax is charged once at the final sale. That is why VAT countries usually show tax-inclusive prices on shelves, whereas US prices add tax at checkout. If you sell in the US, our sales tax calculator below covers that case.
To add VAT: gross = net x (1 + rate). To remove VAT: net = gross / (1 + rate). To find the VAT amount from a net price: VAT = net x rate.
Multiply the net price by 1.20. A £250 net price becomes £300 gross, containing £50 of VAT.
Divide the gross price by 1 plus the rate (1.20 at 20%). A £300 gross price becomes £250 net with £50 of VAT. Do not subtract the percentage from the gross figure; that overstates the tax.
Removing VAT by subtracting the rate directly from the gross price. Twenty percent off a £300 gross price gives £60, but the correct VAT is £50, because the rate was applied to the smaller net price, not the gross price.
Always on the net price. The gross price is the net price plus VAT, which is exactly why reversing VAT requires division rather than subtraction.
VAT-registered businesses can usually reclaim the VAT they paid on business purchases (input VAT) by offsetting it against the VAT they charged customers (output VAT), remitting only the difference to the tax authority.
Formulas are good, but instant answers are better. Our free calculators do the maths for you:
This article is for general information only and is not professional tax advice. Rates change, and reduced or zero rates often apply to specific goods, so confirm the current rate with your local tax authority before invoicing or filing.