VAT Explained: How to Add and Remove VAT Correctly
Value Added Tax, or VAT, is a consumption tax added to the price of most goods and services in many countries. The maths is simple once you separate the two directions people get stuck on: adding VAT to a price that does not yet include it, and removing VAT from a price that already does. Mixing the two up is the usual cause of wrong invoices.
Adding VAT to a net price
To add VAT, multiply the net amount by the VAT rate and add it on. At a 20% rate, VAT on a net price of 100 is 100 × 20% = 20, so the gross price is 120. A quick shortcut is to multiply the net price by 1 plus the rate as a decimal: 100 × 1.20 = 120. The gross price is simply the net price times 1.20 at a 20% rate.
Removing VAT from a gross price
This is where people slip up. You cannot just take 20% off a gross price to find the VAT — because the 20% was added to the smaller net figure, not the larger gross one. Instead, divide the gross price by 1 plus the rate. From a gross 120 at 20%: 120 ÷ 1.20 = 100 net, so the VAT portion is 20. Taking a naive 20% off 120 would wrongly give 24.
The formulas at a glance
- Add VAT: gross = net × (1 + rate). VAT amount = net × rate.
- Remove VAT: net = gross ÷ (1 + rate). VAT amount = gross − net.
- At 20%, multiply by 1.2 to add VAT and divide by 1.2 to strip it out.
Is VAT the same as sales tax?
They achieve a similar end result for the shopper but work differently. VAT is collected in stages along the supply chain, while sales tax is typically charged only once at the final sale. The arithmetic of adding or removing the tax from a price, however, is the same.
How is VAT different from India's GST?
GST is India's value-added tax and follows the same add-and-remove maths shown here, but with its own slab rates and a CGST/SGST split for intra-state sales. If you are in India, use the GST calculator, which handles that split for you.
The bottom line
Adding VAT means multiplying the net price by one plus the rate; removing it means dividing the gross price by one plus the rate — never just subtracting the percentage. Keep those two directions straight and your invoices will always reconcile. Our free VAT calculator does both directions in one click.