VAT explained: how to add or remove VAT from a price

Adding VAT means multiplying by (1 + rate). Removing it means dividing by (1 + rate) — not subtracting the rate. That single difference is behind most of the mistakes people make with net and gross prices, and it gets larger the higher the rate is.

The quickest route here: open the VAT calculator, enter any one of the three figures — net, VAT or gross — pick a rate, and it fills in the other two. Everything below explains the arithmetic so you can check an invoice by hand.

Net and gross

Value-added tax (VAT, also called GST or sales tax in some countries) is added to the price of most goods and services. Businesses usually think in net prices, excluding VAT, because that is what they actually earn. Consumers see gross prices, including VAT. Invoices normally show all three lines: net, the VAT amount, and gross.

Adding VAT

Gross = Net × (1 + rate)

100 net at 20% → 100 × 1.20 = 120 gross, of which 20 is VAT. At 19% the same net price gives 119; at 5.5% it gives 105.50. A net price of 1,000 becomes 1,190 at 19%, 1,210 at 21% and 1,220 at 22%.

Removing VAT — the common mistake

Net = Gross ÷ (1 + rate)

120 gross at 20% → 120 ÷ 1.20 = 100 net, so the VAT is 20.

The mistake is to subtract 20% from 120, which gives 96 and a VAT amount of 24. VAT is 20% of the net price, not of the gross price, so you have to divide. The gap is not trivial: in this example the wrong method overstates the tax by 4 and understates your revenue by the same amount.

If you only want the tax inside a price you already know, use VAT = Gross × rate ÷ (1 + rate). That fraction is worth memorising for the rate you use most:

Rate	VAT share of the gross price	As a fraction
22%	18.03%	22/122
21%	17.36%	21/121
20%	16.67%	1/6
19%	15.97%	19/119
10%	9.09%	1/11
5.5%	5.21%	5.5/105.5

Rates differ by country and by product

These are the current rates in a few European countries. Rates change, reduced rates apply only to specific goods and services, and the category a product falls into is not always obvious — check the current official rate for your own country and product before you invoice.

Country	Standard rate	Reduced rates
France	20%	10%, 5.5%, 2.1%
Germany	19%	7%
Spain	21%	10%, 4%
Italy	22%	10%, 5%, 4%
United Kingdom	20%	5%, 0%

A zero rate is not the same thing as being outside the scope of VAT: a zero-rated sale still appears on a VAT return at a rate of 0%. Which rate applies to what is a matter of law in each country, not arithmetic.

A worked invoice with two rates

Rates apply per line, not per invoice. Suppose a line of 80 net at 20% and a line of 30 net at 5.5%:

• 80 × 1.20 = 96.00
• 30 × 1.055 = 31.65
• Invoice total: 127.65, of which 16.00 + 1.65 = 17.65 is VAT.

There is no single rate that reproduces this total from the 110 net, which is why invoices list VAT per rate rather than as one figure.

Rounding: the missing cent

Three lines at 12.42, 12.31 and 11.72 carry 2.48, 2.46 and 2.34 of VAT at 20% once each line is rounded — 7.28 in total. Apply 20% to the sum of 36.45 instead and you get 7.29. Both are defensible; they round at different points. Accounting software picks one rule and applies it consistently, so a one-cent difference against your own check is usually this, not an error.

VAT and your margin

Margins are calculated on net prices, because VAT is not your revenue — you collect it and pass it on. To price a product:

1. Set your net selling price from your cost with the Profit margin or Markup calculator.
2. Add VAT to get the shelf price.

A cost of 40 sold at 65 net is a 38.46% margin and a 62.5% markup — the same deal described two ways. At 20% VAT the shelf price is 78.

If you start from a round shelf price instead, remove VAT first to see what you actually earn: 49.90 gross at 20% is 41.58 net and 8.32 of VAT. At 5.5% the same 49.90 is 47.30 net.

Discounts on VAT-inclusive prices

A percentage discount on a gross price reduces the net amount and the VAT in the same proportion, so you can apply the Discount calculator directly to shelf prices. 20% off a gross 120 gives 96, which splits into 80 net and 16 of VAT — still exactly 20% of the net.

Order matters when discounts stack rather than when VAT is involved: two successive reductions of 20% and 10% give 28%, not 30%. The guide How to calculate percentages covers that in detail.

Questions people ask

Why is 20% VAT one sixth of the price and not one fifth? Because the 20% is measured against the net price. If net is 5 parts, VAT is 1 part and gross is 6, so VAT is one sixth of the gross.

Which figure goes in my accounts? Net for revenue and expenses, with VAT tracked separately as an amount you owe or reclaim. The exact treatment depends on your VAT scheme and country.

A supplier quoted "100 HT" — is that net? Yes. HT (hors taxes) is French for excluding VAT, and TTC (toutes taxes comprises) means including it. In English, "ex VAT" and "inc VAT" do the same job.

Does the calculator handle any rate? You can type any rate, including uncommon ones like 2.1% or 7%, and it works in both directions.

Next steps

• Convert between net, VAT and gross: VAT calculator
• Price from cost: Profit margin and Markup
• Check the underlying arithmetic: Percentage calculator

This guide explains the arithmetic, not tax law. Rules on who must charge VAT, which rate applies, exemptions, cross-border sales and reporting vary by country and change over time — check the official guidance for your situation or ask an accountant.