How to Calculate VAT: Formulas, Examples, and Shortcuts
1. Adding VAT (Net to Gross)
This is the most common calculation. You have a price without tax (Net Price) and you need to add VAT to get the final price (Gross Price).
Gross Price = Net Price × (1 + VAT Rate %)
Example:
You sell a service for $100 and need to add 20% VAT.
- Net Price: $100
- VAT Rate: 20% (which is 0.20 as a decimal)
- Multiplier: 1 + 0.20 = 1.20
- Calculation: $100 × 1.20 = $120
Result: The Gross Price is $120.
2. Removing VAT (Gross to Net)
This is often called a "reverse VAT calculation." You have the total price including tax, and you need to find out what the price was before tax.
Net Price = Gross Price ÷ (1 + VAT Rate %)
Example:
You bought a laptop for $1,200 which includes 20% VAT. What was the pre-tax price?
- Gross Price: $1,200
- VAT Rate: 20% (1.20 multiplier)
- Calculation: $1,200 ÷ 1.20 = $1,000
Result: The Net Price is $1,000.
Common Mistake: Never try to remove VAT by subtracting the percentage. $120 minus 20% is $96, not $100! You must divide, not subtract.
3. Calculating the VAT Amount Only
Sometimes you just want to know how much tax is included in a price.
From Net Price:
Simply multiply the Net Price by the VAT percentage.
VAT Amount = Net Price × 0.20
From Gross Price:
This is trickier. You need to calculate the "VAT fraction."
VAT Amount = Gross Price × (Rate / (100 + Rate))
For 20% VAT, the fraction is 20/120, which simplifies to 1/6.
So, to find the VAT content of a 20% taxed item, just divide the total by 6.
Example: $120 ÷ 6 = $20 VAT.
Summary Cheat Sheet
| Goal | Formula (20% VAT) |
|---|---|
| Add VAT | Multiply by 1.20 |
| Remove VAT | Divide by 1.20 |
| Find VAT (from Net) | Multiply by 0.20 |
| Find VAT (from Gross) | Divide by 6 |
Now that you've mastered the math, check out our guide on VAT Rates Explained to know which percentage to use for different goods.