How VAT is calculated
Value-added tax is a consumption tax applied as a percentage of the net (pre-tax) price. Prices shown to consumers in most VAT countries already include it, so the two everyday tasks are adding VAT to a net figure (quoting a customer, pricing a product) and removing VAT from a gross figure (working out the reclaimable tax on a receipt, or the net revenue from a sale). The calculator does both for any rate.
Add VAT: Gross = Net × (1 + Rate) VAT = Net × Rate
Remove VAT: Net = Gross ÷ (1 + Rate) VAT = Gross − NetThe division in the second line is the step people get wrong. At 20% VAT, the tax inside a £120 gross price is not 20% of £120 (£24) but 120 ÷ 1.2 = £100 net and £20 VAT — one-sixth of the gross, not one-fifth.
Worked examples
Adding VAT: a freelancer quotes €1,500 net for a project in a country with 21% VAT.
VAT = 1500 × 0.21 = €315
Gross invoice total = €1,815Removing VAT: a business buys a laptop for £1,199 including 20% VAT and wants the net cost and reclaimable tax.
Net = 1199 ÷ 1.20 = £999.17
Reclaimable VAT = 1199 − 999.17 = £199.83Standard VAT rates around the world
| Country / region | Standard rate | Reduced rate(s) |
|---|---|---|
| United Kingdom | 20% | 5%, 0% |
| Germany | 19% | 7% |
| France | 20% | 10%, 5.5%, 2.1% |
| Ireland | 23% | 13.5%, 9%, 0% |
| Netherlands | 21% | 9% |
| Sweden | 25% | 12%, 6% |
| Hungary (highest in EU) | 27% | 18%, 5% |
| Australia (GST) | 10% | 0% on basic food |
| New Zealand (GST) | 15% | — |
| Japan | 10% | 8% on food |
| Thailand | 7% | 0% on exports |
| Singapore (GST) | 9% | — |
Rates are set nationally and change with budgets; the table reflects commonly cited standard rates and should be checked against the tax authority for the current figure and for which goods qualify for reduced rates.
Quick mental shortcuts
- 20% VAT: VAT inside a gross price is one-sixth of it. Net is five-sixths.
- 25% VAT: VAT inside a gross price is one-fifth. Net is four-fifths.
- 10% VAT/GST: VAT inside a gross price is one-eleventh.
- 5% VAT: VAT inside a gross price is one twenty-first — roughly 4.76% of the gross.
The general rule: the VAT fraction of a gross price is Rate ÷ (1 + Rate). That fraction is what appears on many tax authority guidance pages as the “VAT fraction”.
VAT vs sales tax
A sales tax is collected once, at the final sale to the consumer. VAT is collected at every stage of the supply chain: each business charges VAT on its sales (output tax), reclaims the VAT it paid on purchases (input tax), and remits the difference. The end consumer bears the same total, but the government receives it in instalments and gains an audit trail — each business has an incentive to demand a proper VAT invoice from its suppliers. That mechanism is why VAT invoices must show the seller's VAT number, the net amount, the rate and the tax amount separately.
Registration, thresholds and reclaiming
- Registration thresholds. Most countries only require VAT registration above an annual turnover threshold (for example £90,000 in the UK); below it, registration is optional. Some countries, including many in the EU, require registration from the first sale for certain activities.
- Voluntary registration lets a small business reclaim input VAT on its costs, which is attractive if customers are VAT-registered businesses themselves (they can reclaim what you charge) but unattractive if they are consumers (your prices rise by the VAT rate).
- Cross-border sales. Within the EU, B2B sales are generally zero-rated with the customer accounting for VAT under the reverse charge; B2C digital sales are taxed at the customer's country rate via the OSS scheme. Exports outside a VAT zone are usually zero-rated.
- Reduced and zero rates apply to specific categories — food, books, children's clothing, medical supplies, domestic energy — and the lists differ by country. Zero-rated is not the same as exempt: zero-rated sales still allow input VAT recovery; exempt ones do not.