How to calculate VAT: formulas and examples
TL;DR, the essentials
- VAT is calculated from the net (ex-VAT) amount: VAT = net x rate (0.20 for a 20% rate).
- To get the gross (VAT-inclusive) price, multiply the net by 1.20 (that is, 1 + the rate).
- To pull the VAT back out of a gross price at 20%, compute gross / 1.20 x 0.20.
- Rates and rules differ from country to country. The examples below use a 20% rate for illustration; always check your local rate.
Working out VAT comes up constantly in business life: quoting a job, issuing an invoice, backing out the net amount from a receipt, or preparing a return. The mechanics are simple once the right formulas are in your head. Here is how to calculate VAT from a net figure, how to move from net to gross, and how to recover the tax from a VAT-inclusive price, with worked examples throughout.
What is VAT, exactly?
VAT (value added tax) is an indirect tax on consumption, collected by businesses on behalf of the tax authority. In practice, a business adds VAT to the net price of its sales, charges it to the customer, then passes it on to the government. The final consumer bears the tax and cannot reclaim it.
The business charges VAT
It adds output VAT to the net price and collects it from the customer.
It reclaims its purchases
It recovers the input VAT paid on its own business purchases.
It pays the difference
Only the gap between output VAT and input VAT is paid to the tax office.
Two ideas run through the whole system. Output VAT is what you charge your customers on your sales. Input VAT is what you pay on your business purchases and can usually reclaim. The difference between the two is what you actually hand over to the government. In most countries, small businesses below a registration threshold do not charge VAT at all, but that threshold and its rules vary widely, so check the position where you trade.
In one sentence
For a VAT-registered business, VAT is not a cost: it collects the tax, reclaims what it paid, and only pays over the balance. The final consumer is the one who bears it.
What VAT rate should you apply?
There is no single global VAT rate. Each country sets its own standard rate and, in most cases, one or more reduced rates for specific goods and services. Identifying the correct rate for what you are selling is the first step, because applying the wrong one distorts both the invoice and your return.
The United Kingdom is a useful illustration. It applies three main rates:
| Rate | Name | Typical examples (UK) |
|---|---|---|
| 20% | Standard rate | Most goods and services (the default) |
| 5% | Reduced rate | Domestic fuel and power, children’s car seats, some home energy-saving materials |
| 0% | Zero rate | Most food, children’s clothing, books and newspapers |
UK rates shown for illustration (source: gov.uk, HMRC), valid at the time of writing. Rates, categories and thresholds differ in every country and change over time. Always confirm the rate that applies to your activity and location, or ask your accountant.
Rates are country-specific
The formulas in this guide work everywhere. Only the rate changes. A 20% example is used throughout, but if your standard rate is 19%, 21%, 23% or anything else, swap in your own figure.
How do you calculate VAT from a net amount?
This is the most common case: you know the net (ex-VAT) price and you want the VAT amount. The formula is direct:
VAT amount = net amount x VAT rate
The rate is expressed as a decimal: 0.20 for 20%, 0.05 for 5%, and so on. Example, a service sold at 1,000 net at a 20% rate:
- VAT = 1,000 x 0.20 = 200
- At a 5% reduced rate: 1,000 x 0.05 = 50
- At a 0% rate: 1,000 x 0 = 0 (still reportable, but no VAT charged)
Quick quiz
How much VAT is on an invoice of 800 net at a 20% standard rate?
How do you go from net to gross?
The gross (VAT-inclusive) price is what the customer actually pays: the net plus the VAT. Rather than calculating the tax and then adding it, multiply the net directly by the coefficient (1 + rate):
Gross price = net amount x 1.20 (at a 20% rate)
Take the service at 1,000 net at the standard rate: gross = 1,000 x 1.20 = 1,200. The coefficient changes with the rate: x 1.05 for 5%, x 1.19 for 19%, x 1.23 for 23%. A book sold at 20 net under a 5% rate comes to 20 x 1.05 = 21 gross.
Tired of juggling coefficients?
Our comparison ranks the invoicing tools that calculate net, VAT and gross automatically, line by line.
How do you extract VAT from a gross price?
The reverse situation is just as common: you have a gross amount (a receipt, a shelf price) and you want to isolate the VAT or the net. First recover the net by dividing the gross by the coefficient, then work out the tax.
Net = gross / 1.20 • VAT = gross / 1.20 x 0.20 (at a 20% rate)
On a price of 1,200 gross at the standard rate: net = 1,200 / 1.20 = 1,000, so VAT = 1,200 – 1,000 = 200. Or in one step: VAT = 1,200 / 1.20 x 0.20 = 200.
The classic mistake to avoid
Applying 20% to the gross amount gives the wrong answer (240 instead of 200), because VAT is calculated on the net, not the gross. Always divide back down to the net first using the coefficient.
A quick VAT formula cheat sheet
Here are the four calculations worth memorising, shown on a starting base at a 20% rate. Just swap the coefficient for your own rate.
| What you want | Formula (20% rate) | Example |
|---|---|---|
| VAT from the net | net x 0.20 | 1,000 x 0.20 = 200 |
| Gross from the net | net x 1.20 | 1,000 x 1.20 = 1,200 |
| Net from the gross | gross / 1.20 | 1,200 / 1.20 = 1,000 |
| VAT from the gross | gross / 1.20 x 0.20 | 1,200 / 1.20 x 0.20 = 200 |
Output VAT, input VAT: what do you actually pay?
Working out a single invoice does not tell you what you owe the tax office. At the level of the whole business, the VAT to pay is calculated like this:
VAT to pay = output VAT (on your sales) – input VAT (on your purchases)
Example: over a period, you collected 2,000 in output VAT on your sales and paid 600 in input VAT on your business purchases. You therefore pay 2,000 – 600 = 1,400 to the tax authority. If input VAT exceeds output VAT, you are in a VAT credit position, which is typically carried forward or refunded.
Good habit
Keep every business purchase invoice. Without a proper VAT invoice showing the tax, you generally lose the right to reclaim the input VAT, and you end up paying more than you needed to.
Should you calculate VAT by hand?
For a one-off quote, these formulas are all you need. But as volume climbs, mixing several rates, handling deposits and credit notes and preparing the return becomes a source of errors. A invoicing tool applies the right rate automatically, calculates net, VAT and gross on every line, and builds your VAT summaries without re-keying anything.
It also helps you stay on top of changing obligations. Many tax authorities now require VAT returns to be filed digitally, and e-invoicing mandates are rolling out on different timelines around the world. The specifics depend entirely on where you operate, so check your national rules, but software that keeps up with them removes a lot of the risk.
Automate VAT and stay compliant
Our selection brings together the invoicing tools that calculate VAT and keep pace with digital filing rules.
Frequently asked questions
How do you calculate 20% VAT quickly?
From a net price, multiply by 0.20 to get the VAT (1,000 net x 0.20 = 200), or by 1.20 to get the gross price directly (1,000 x 1.20 = 1,200). From a gross price, divide by 1.20 to recover the net, then subtract to isolate the VAT.
How do you find the net amount from the gross?
Divide the gross amount by the coefficient for your rate: 1.20 for 20%, 1.19 for 19%, 1.05 for 5%, and so on. Example: 1,200 gross at a 20% rate gives 1,200 / 1.20 = 1,000 net.
Is the VAT rate the same in every country?
No. Each country sets its own standard rate and its own reduced or zero rates for specific goods and services. The calculation method is identical everywhere, only the rate changes. The UK, for instance, uses 20%, 5% and 0%, while other countries use different figures.
Does a small business have to charge VAT?
In most countries there is a registration threshold below which a business does not charge VAT. Once turnover passes that threshold, or if the business registers voluntarily, it must charge, reclaim and pay VAT like any other. The threshold and its rules vary by country, so check your local position.
How much VAT does a business really pay to the tax office?
It pays the difference between the output VAT charged on its sales and the input VAT paid on its business purchases. If input VAT is higher, the business is in a VAT credit position, usually carried forward or refunded.