Adding and removing tax
Adding tax to a net price
gross = net × (1 + rate ÷ 100)
At a 20% rate, a net price of 250 becomes 250 × 1.20 = 300, of which 50 is tax.
Removing tax from a gross price
net = gross ÷ (1 + rate ÷ 100)
This is the step people most often get wrong. A gross price of 300 at 20% VAT is not 300 − 20% = 240. It is 300 ÷ 1.20 = 250, because the 20% was charged on the smaller net figure. The tax portion is the 50 difference.
Rule of thumb: to add tax you multiply, to remove it you divide. Subtracting the percentage from the gross price always understates the net amount.
Why subtracting the rate is wrong
It is worth seeing the error in full, because it is the single most common mistake in invoicing and it always goes the same direction — it understates the net figure and overstates the tax.
Take a gross price of £600 at 20% VAT. The correct net is 600 ÷ 1.20 = £500, so the VAT is £100. Subtracting 20% from £600 gives £480 and implies £120 of VAT — £20 too much on a single invoice.
The reason is that the two percentages are taken from different bases. The 20% was charged on £500; subtracting 20% takes it from £600. The gap between the two answers is always the tax on the tax.
tax share of gross = rate ÷ (100 + rate) × 100
At 20%, tax is 20 ÷ 120 = 16.67% of what you hand over, not 20%. That figure — the "VAT fraction" — is what the third column of the table below gives you, and it is the number to reach for when you need the tax out of a gross total in one step.
| Rate | Multiply by (to add) | Divide by (to remove) | Tax share of gross |
|---|---|---|---|
| 5% | 1.05 | 1.05 | 4.76% |
| 7.5% | 1.075 | 1.075 | 6.98% |
| 10% | 1.10 | 1.10 | 9.09% |
| 17% | 1.17 | 1.17 | 14.53% |
| 19% | 1.19 | 1.19 | 15.97% |
| 20% | 1.20 | 1.20 | 16.67% |
| 21% | 1.21 | 1.21 | 17.36% |
| 22% | 1.22 | 1.22 | 18.03% |
| 23% | 1.23 | 1.23 | 18.70% |
| 24% | 1.24 | 1.24 | 19.35% |
| 25% | 1.25 | 1.25 | 20.00% |
| 27% | 1.27 | 1.27 | 21.26% |
The last column explains a common surprise: at a 25% VAT rate, tax is 20% of what you actually hand over, not 25%.
VAT versus sales tax
VAT is charged at every stage of production, with businesses reclaiming what they paid on inputs, and it is normally quoted inclusive of tax on consumer price tags. US sales tax is charged once at the point of final sale and is normally quoted exclusive, added at the till. The arithmetic is the same; what differs is whether the number you are looking at already contains the tax.
| VAT / GST | US sales tax | |
|---|---|---|
| Charged at | Every stage of the supply chain | The final sale only |
| Price on the tag | Usually includes tax | Usually excludes tax |
| Business cost | Reclaimed as input tax | Exempt with a resale certificate |
| Rate set by | National government | State, county and city, combined |
| Typical range | 5–27% | 0–10.5% combined |
The practical consequence for a traveller is that a European price tag is what you pay, while a US price tag is not. The practical consequence for a business is that the gross figure on a European invoice needs dividing, while a US subtotal needs multiplying.
Standard rates in common jurisdictions
Rates change, and most countries also operate reduced rates for food, books, transport or medicine, so treat this as a starting point rather than as tax advice — check the current rate with the relevant authority before invoicing.
| Jurisdiction | Standard rate | Note |
|---|---|---|
| United Kingdom | 20% | Reduced 5%, zero-rated food and books |
| Germany | 19% | Reduced 7% |
| France | 20% | Reduced 10%, 5.5% and 2.1% |
| Spain | 21% | Reduced 10% and 4% |
| Italy | 22% | Reduced 10%, 5% and 4% |
| Netherlands | 21% | Reduced 9% |
| Portugal | 23% | Reduced 13% and 6% |
| Ireland | 23% | Reduced 13.5% and 9% |
| Sweden | 25% | Reduced 12% and 6% |
| Hungary | 27% | Highest standard rate in the EU |
| Brazil | Varies | ICMS is state-level, typically 17–20% |
| Canada | 5% GST | Provincial sales tax applies on top |
| Australia | 10% GST | Broad base, few exemptions |
Invoicing, rounding and reverse charge
Where to round
Tax rules usually specify whether VAT is calculated per line or on the invoice total, and the two can differ by a unit or two on a long invoice because of rounding. Calculate the way your jurisdiction requires rather than whichever is convenient, and round only at the step the rules name — rounding intermediate figures compounds the drift.
Reverse charge
On many cross-border business-to-business supplies within the EU, the supplier invoices with no VAT and the customer accounts for it themselves at their own domestic rate. The arithmetic is unchanged; what changes is who pays it to whom. An invoice under reverse charge shows the net amount and a statement that the reverse charge applies, not a zero rate.
Inclusive and exclusive quoting
When you quote a price to a consumer in a VAT jurisdiction, the figure is normally expected to be tax-inclusive. If you have a target amount you want to keep, divide it by the multiplier rather than adding the rate to it: to keep €1,000 net at 23%, quote €1,000 × 1.23 = €1,230, not €1,000 + 23% of €1,230.
How to add VAT to a price
- Enter the net price. Type the price before tax into the base field.
- Enter the tax rate. Type the VAT or sales tax rate as a positive percentage.
- Read the gross price. The result is the price including tax; the difference from the net price is the tax itself.
- To go the other way. Put the gross price in the result field and the rate in the percentage field, and the calculator solves for the net amount by dividing.
Frequently Asked Questions
- How do I remove 20% VAT from a price?
- Divide by 1.20. A gross price of £120 has a net price of 120 ÷ 1.2 = £100 and £20 of VAT.
- Why can I not just subtract the VAT rate?
- Because the rate was applied to the net price, which is smaller than the gross. Subtracting 20% from the gross removes too much — on £600 it overstates the VAT by £20.
- What share of a gross price is tax at 21%?
- 21 ÷ 121 = 17.36% of the total you pay.
- What is the VAT fraction?
- The share of a gross price that is tax, given by rate ÷ (100 + rate). At 20% it is 1/6, so dividing a gross total by 6 gives the VAT directly.
- How do I quote a price that leaves me a specific net amount?
- Multiply the net amount you want by the tax multiplier. To keep €1,000 at 23%, quote €1,230 — not €1,000 plus 23% of the final figure.
- Is sales tax calculated the same way as VAT?
- The arithmetic is identical. The difference is that US prices are usually quoted before tax, so you multiply, while European prices usually already include it, so you divide.
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