Value Added Tax (VAT) is a consumption tax charged at each stage of the supply chain, with businesses reclaiming the VAT they pay on purchases, so in the end the consumer bears it. More than 170 countries use VAT or a similar goods and services tax (GST). Whether you’re writing an invoice, checking a receipt or pricing a product, you’ll need two calculations: adding VAT to a net price and removing VAT from a gross price. Both take seconds with our VAT calculator, but it’s worth understanding the formulas.
This guide is general information, not tax advice. Rules for specific goods and services vary; check with HMRC, your national tax authority or an accountant.
The two formulas
Let r be the VAT rate as a decimal (20% = 0.20).
| Task | Formula | Example at 20% |
|---|---|---|
| Add VAT (net → gross) | gross = net × (1 + r) | £250 × 1.20 = £300 |
| VAT amount from net | VAT = net × r | £250 × 0.20 = £50 |
| Remove VAT (gross → net) | net = gross ÷ (1 + r) | £300 ÷ 1.20 = £250 |
| VAT amount from gross | VAT = gross × r ÷ (1 + r) | £300 × 0.20 ÷ 1.20 = £50 |
The classic mistake
To remove 20% VAT from £300, people often calculate 300 × 20% = £60 and subtract it, getting £240. That’s wrong, because the 20% was calculated on the net price (£250), not on £300. Always divide by 1 + r.
Handy fractions for VAT-inclusive prices:
- 20% VAT = 1/6 of the gross price (£300 ÷ 6 = £50).
- 5% VAT = 1/21 of the gross price.
- 19% VAT = 19/119 of the gross price.
UK VAT rates and rules
| Rate | Applies to (examples) |
|---|---|
| 20% standard | Most goods and services |
| 5% reduced | Domestic fuel and power, children’s car seats, mobility aids installed for older people |
| 0% zero rate | Most food, children’s clothing, books and newspapers, public transport |
Some supplies are exempt (e.g. most insurance, finance, education, health services), which is different from zero-rated: exempt businesses can’t reclaim VAT on related costs.
Registration threshold: a UK business must register when VAT-taxable turnover exceeds £90,000 in any rolling 12 months, or is expected to exceed it in the next 30 days alone. The deregistration threshold is £88,000. VAT-registered businesses file returns digitally under Making Tax Digital.
UK worked examples
- Adding VAT: a web designer invoices £1,450 net. VAT = 1,450 × 0.20 = £290. Total invoice: £1,740.
- Removing VAT: a laptop costs £899.99 including VAT. Net = 899.99 ÷ 1.20 = £749.99 (rounded); VAT = £150.00.
- Reduced rate: a gas bill of £84 including 5% VAT. Net = 84 ÷ 1.05 = £80; VAT = £4.
EU VAT rates in 2026
Each EU member state sets its own rates within EU rules: a standard rate of at least 15% and up to two reduced rates (with some exceptions). Standard rates as of autumn 2026 for a selection of countries:
| Country | Standard rate | Country | Standard rate |
|---|---|---|---|
| Hungary | 27% | Spain | 21% |
| Denmark | 25% | Netherlands | 21% |
| Sweden | 25% | Belgium | 21% |
| Finland | 25.5% | France | 20% |
| Croatia | 25% | Austria | 20% |
| Greece | 24% | Germany | 19% |
| Estonia | 24% | Cyprus | 19% |
| Ireland | 23% | Malta | 18% |
| Poland | 23% | Luxembourg | 17% |
| Portugal | 23% | Italy | 22% |
Rates change more often than people expect: Finland moved to 25.5% in September 2024, Estonia to 24% in July 2025, and several countries adjusted reduced rates on 1 January 2026 (for example, Germany cut VAT on restaurant food to 7%). Always confirm the rate for the country and the specific product before invoicing.
EU worked examples
- Germany: a product sells for €59.99 including 19% VAT. Net = 59.99 ÷ 1.19 = €50.41; VAT = €9.58.
- France: a service of €2,000 net. Gross = 2,000 × 1.20 = €2,400.
- Ireland: a gross price of €246. Net = 246 ÷ 1.23 = €200; VAT = €46.
Selling across borders
- B2B within the EU: usually the reverse charge applies: you invoice without VAT, quoting both VAT numbers, and the customer accounts for VAT in their country.
- B2C distance sales within the EU: once your cross-border sales to EU consumers exceed €10,000 a year in total, you charge the VAT rate of the customer’s country. The One-Stop Shop (OSS) lets you report it in a single return.
- UK ↔ EU: since Brexit, exports from the UK to the EU are generally zero-rated in the UK, with import VAT due in the destination country, and vice versa. Northern Ireland follows special rules for goods.
US sales tax: a different system
The United States has no national VAT. Instead, 45 states plus Washington DC levy a sales tax, often with additional county and city taxes, charged once at the final sale to the consumer. Alaska, Delaware, Montana, New Hampshire and Oregon have no statewide sales tax, though some local taxes apply in Alaska and certain resort areas.
Key differences from VAT:
- US prices are usually shown before tax; tax is added at the till. In the UK and EU, consumer prices must include VAT.
- Rates depend on the delivery address, often down to the city or district.
- Many states exempt groceries, clothing or prescription drugs, and rules differ widely.
- Online sellers must collect tax in a state once they pass its “economic nexus” threshold (often $100,000 of sales), following the 2018 Supreme Court decision in South Dakota v. Wayfair.
Example: an $80 purchase in New York City, where the combined state and city rate is 8.875%: tax = 80 × 0.08875 = $7.10, total $87.10.
Rounding and invoicing tips
- Calculate VAT per line or on the invoice total consistently. HMRC allows either method as long as you’re consistent; rounding differences of a penny are normal.
- Round the VAT amount to the nearest penny or cent at the end, not at intermediate steps.
- Show net amount, VAT rate, VAT amount and gross total on VAT invoices, along with your VAT number.
For the underlying maths of reverse percentages, see our percentage formulas guide.
Checklist
- Know whether a price is net (excluding VAT) or gross (including VAT).
- Add VAT by multiplying by (1 + rate); remove it by dividing by (1 + rate).
- Use the correct rate for the country and the product category.
- For cross-border sales, check reverse charge, OSS and import VAT rules.
- In the US, apply the sales tax rate for the buyer’s location, added on top of the price.