How to calculate VAT: formulas for net and gross prices
VAT calculations go in two directions: adding VAT to a net price and separating VAT from a gross price. The formulas differ and this is where people mix them up most.
Adding VAT to a net price
Multiply the net amount by the VAT rate to get the VAT amount. The gross price is the sum of the two.
VAT amount = net × rate / 100
Gross = net + VAT amount
Example: 1,000, 20% VAT
VAT amount = 1,000 × 20 / 100 = 200
Gross = 1,000 + 200 = 1,200Removing VAT from a gross price
A common mistake here is to take the rate of the gross amount and subtract it. That is wrong, because the gross price was already built on 1 + rate. The correct way is to divide by 1 + rate.
Net = gross / (1 + rate / 100)
VAT amount = gross − net
Example: 1,200 including 20% VAT
Net = 1,200 / 1.20 = 1,000
VAT amount = 1,200 − 1,000 = 200
Wrong way: 1,200 × 20 / 100 = 240 (incorrect)Which rate should I use?
VAT rates differ by country and by product or service, and they can change over time. If you are not sure, check the current rate with your tax authority or an accountant.
How is rounding done?
Amounts are rounded to the cent, two decimal places. Rounding the VAT of every invoice line separately can differ by a cent from calculating the VAT of the total at once. That is a result of the rounding method, not an error.
For a quick calculation
To type an amount and a rate and see the result instantly, use the VAT calculator. It has add VAT and remove VAT options and shows the net, VAT and gross amounts together. Your numbers never leave your browser.
This article is general information, not tax advice. For official matters consult an accountant.