What is VAT?
Value-added tax (VAT) is a consumption tax applied to goods and services in many jurisdictions. A net price excludes VAT, while a gross price includes it.
VAT rates and tax rules vary by country and transaction type. Verify the applicable rate with the relevant tax authority.
How to add VAT
Multiply the net price by the VAT rate divided by 100 to find the tax amount, then add that amount to the net price. At 20%, a net price of 100 has VAT of 20 and a gross price of 120.
How to remove VAT
Divide the gross price by one plus the VAT rate as a decimal. At 20%, divide a gross price of 120 by 1.20 to recover a net price of 100. The difference of 20 is the VAT amount.
VAT calculation formulas
Net price vs gross price
Net price is the amount before VAT. Gross price is the total after VAT has been added. On invoices and price displays, the required treatment depends on local rules and the type of buyer or transaction.
Worked examples
| Calculation | Net | VAT | Gross |
|---|---|---|---|
| Add 20% to 100 | 100 | 20 | 120 |
| Remove 20% from 120 | 100 | 20 | 120 |
| Add 27% to 100 | 100 | 27 | 127 |
| Remove 27% from 127 | 100 | 27 | 127 |
VAT vs sales tax
VAT is generally collected through stages of the supply chain, while retail sales tax is commonly charged at the final sale. Exact mechanisms, exemptions, registration duties, and rates vary, so use the terminology and rules applicable to the transaction.
Frequently asked questions
How do I calculate VAT?
Multiply the net price by the VAT rate divided by 100. Add the VAT amount to the net price to find the gross price.
How do I add VAT to a price?
Multiply the net price by 1 plus the VAT rate written as a decimal. For 20%, multiply by 1.20.
How do I remove VAT from a gross price?
Divide the gross price by 1 plus the VAT rate written as a decimal. For 20%, divide by 1.20.
What is the difference between net and gross price?
Net price excludes VAT. Gross price includes the net price plus the VAT amount.
Can I use a custom VAT rate?
Yes. Enter any non-negative VAT or tax rate. The suggested rates are conveniences and are not tied to specific countries.
Is VAT the same as sales tax?
Both are consumption taxes, but their collection and reporting mechanisms can differ. Rules vary by jurisdiction and transaction type.
Why is removing 20% VAT not the same as subtracting 20% from the gross price?
VAT is calculated as a percentage of the net price, while the gross price already includes VAT. To remove 20% VAT, divide the gross price by 1.20 rather than subtracting 20% of gross.