How to add and remove VAT or GST from a price
To add VAT or GST, multiply the price before tax by 1 plus the rate. To remove it, divide the price that includes tax by the same number. At 20%, GBP 250.00 becomes GBP 300.00, and GBP 300.00 divided by 1.20 goes back to GBP 250.00. The VAT and GST calculator does both directions at any rate and shows the tax amount.
Net, gross, and the tax in between
Two words come up in every tax sum. The net price is the price before tax, sometimes called exclusive of tax. The gross price is the price after tax, also called inclusive of tax. The tax is the difference between the two, and the rate is always a percentage of the net price, not the gross.
That last point explains almost every VAT mistake. Adding tax starts from the smaller number. Removing tax starts from the larger one, so the same rate cannot be applied to it directly.
Adding tax to a price
- Tax = net x rate / 100
- Gross = net + tax, which is the same as net x (1 + rate / 100)
A UK designer quotes GBP 250.00 for a logo, before VAT at 20%. The tax is 250.00 x 20 / 100, which is GBP 50.00, and the client pays GBP 300.00. Multiplying 250.00 by 1.20 gives the same total in one step.
In Australia, GST is charged at 10%. A plumber's labor charge of AUD 480.00 before GST carries AUD 48.00 of tax, for a total of AUD 528.00. Multiplying 480.00 by 1.10 gives the same AUD 528.00.
Removing tax from a price
- Net = gross / (1 + rate / 100)
- Tax = gross minus net
Going back from GBP 300.00 at 20%, divide by 1.20 to get the net price of GBP 250.00. The tax is 300.00 minus 250.00, which is GBP 50.00. The Australian bill works the same way. AUD 528.00 divided by 1.10 is AUD 480.00, leaving AUD 48.00 of GST.
The common wrong method, and why it fails
The mistake is to take the rate straight off the gross price. On GBP 300.00, 20% is 60.00, which would leave a net price of 240.00. That is GBP 10.00 too low, and the error grows with the price. The 20% was charged on 250.00, so 20% of 300.00 counts tax on the tax itself.
A quick check catches it. Add the tax back to the net price you found, at the same rate. 240.00 x 1.20 is 288.00, which does not match 300.00, while 250.00 x 1.20 does.
Quick reference: divisors for common rates
The same number multiplies a net price and divides a gross price. The last two columns show how a gross price of 100.00 splits into net and tax at each rate. These are plain numbers, not a list of any country's rates.
| Rate | Multiply net or divide gross by | Tax on 100.00 net | Net inside 100.00 gross | Tax inside 100.00 gross |
|---|---|---|---|---|
| 5% | 1.05 | 5.00 | 95.24 | 4.76 |
| 10% | 1.10 | 10.00 | 90.91 | 9.09 |
| 15% | 1.15 | 15.00 | 86.96 | 13.04 |
| 18% | 1.18 | 18.00 | 84.75 | 15.25 |
| 20% | 1.20 | 20.00 | 83.33 | 16.67 |
The tax inside a gross price is always a smaller share than the rate. At 20%, tax is one sixth of the gross, which is 16.67 in every 100.00. At 10%, it is one eleventh.
VAT, GST, and sales tax compared
VAT and GST work in much the same way. Each business in a supply chain charges the tax on its sales and, if registered, can generally claim back the tax it paid on its own business purchases. The final customer carries the cost. The name depends on the country, and so do the rates, the registration limits, and the goods that are taxed at a reduced rate or not at all.
Sales tax in the United States is usually collected once, at the final sale, and the rate can differ between states, counties, and cities. Prices there are often shown before tax, while in many VAT countries shop prices include it. The arithmetic in this guide works for all three. Your tax authority's website lists the rates that apply where you sell, and they change from time to time.
Rounding on invoices: per line or on the subtotal
An invoice can work out tax on each line and add the results, or work it out once on the subtotal. The two methods can differ by a cent. Take 3 lines of GBP 10.33 each at 20%.
| Method | Working | VAT |
|---|---|---|
| Per line | 10.33 x 20% = 2.066, rounded to 2.07, three times | GBP 6.21 |
| On the subtotal | 30.99 x 20% = 6.198, rounded once | GBP 6.20 |
Both methods are in common use, and tax authorities may accept either as long as the business applies one consistently. The rules vary, so the guidance from your own tax authority settles which one applies. The invoice generator works out tax on the subtotal after any discount, and the receipt maker does the same. The guide on how to write an invoice shows where the tax lines sit.
VAT and GST questions
What is 20% VAT on 100.00? It is 20.00, for a gross price of 120.00. Taking 20% VAT out of 100.00 is a different sum. It leaves a net price of 83.33 and 16.67 of tax.
How do I find the tax rate from a net and a gross price? Divide the tax by the net price and multiply by 100. On the GBP example, 50.00 / 250.00 x 100 gives 20%.
Do the same formulas work for sales tax? Yes. Sales tax is added to a price before tax with the same multiplier, and removed with the same divisor.