The VAT formula
Value Added Tax is a percentage added to the net price of goods and services. Adding it is a single multiplication:
VAT = net × rate
gross = net × ( 1 + rate )
Removing VAT from a tax-inclusive (gross) price is the reverse calculation:
net = gross ÷ ( 1 + rate )
VAT = gross − net
The rate is written as a decimal in the math (20% = 0.20). The calculator accepts a percentage and converts it for you.
Worked example
Adding VAT. A £100 net invoice at the 20% standard rate:
VAT: £100 × 0.20 = £20.00.
Gross: £100 + £20 = £120.00.
Removing VAT. A £120 gross receipt at 20%:
Net: £120 ÷ 1.20 = £100.00.
VAT portion: £120 − £100 = £20.00.
Common mistake: to remove 20% VAT you divide by 1.20 — you do not subtract 20% of the gross. Subtracting gives £96, which is wrong, because VAT was applied to the smaller net base.
VAT rates vary by country
The UK standard VAT rate is 20%, with 5% and 0% reduced rates on certain items. EU countries set their own standard rates, typically 17% to 27%. The United States has no VAT and uses sales tax instead. Always apply the correct rate for the jurisdiction of the sale.