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How to Calculate VAT – Formulas and Examples

Whether you are adding VAT to a net price, extracting VAT from a gross price, or just trying to find the VAT amount, this guide explains every formula you need with clear, worked examples. No accounting background required.

The Three VAT Calculations

There are three things you might need to calculate when dealing with VAT: adding VAT to a net price, removing VAT from a gross price, and finding just the VAT amount within a price.

1. Adding VAT to a Net Price

Use this when you have the price before tax and need to find the total price your customer pays.

2. Removing VAT from a Gross Price (Reverse VAT)

Use this when you have a price that already includes VAT and need to find the original net price. This is also called "backing out" VAT.

3. Calculating Just the VAT Amount

Quick Reference — Common Rates

Multipliers and divisors for the most commonly used VAT rates worldwide.

Common Mistakes to Avoid

Do not simply subtract the percentage

A very common mistake: to remove 20% VAT from GBP 120, people subtract 20% and get GBP 96. This is wrong. The correct net is GBP 120 / 1.20 = GBP 100. The reason is that VAT is calculated on the net, not the gross.

Always check whether a price is inclusive or exclusive of VAT

Consumer prices in most countries are shown inclusive of VAT. Business-to-business prices are often shown exclusive of VAT (net). Always clarify before calculating to avoid costly errors on invoices.

Rounding

VAT amounts should be rounded to two decimal places. Standard rounding rules apply: round up at 0.5 and above. On invoices showing multiple line items, it is acceptable to round each line individually then sum, or to sum first and round once at the total level — but be consistent.

VAT vs Percentage Markup — Not the Same

Adding 20% VAT is not the same as applying a 20% markup. A 20% markup on GBP 100 is GBP 120, which happens to match. But removing a 20% markup from GBP 120 gives GBP 96 (incorrect for VAT). Removing 20% VAT from GBP 120 correctly gives GBP 100. The distinction matters because VAT is calculated on the base price, not removed as a percentage of the final price.