How VAT is calculated
Adding VAT to a net amount: gross = net × (1 + rate ÷ 100). At 20% VAT, a net price of 100 becomes 120.
Removing VAT from a gross price: net = gross ÷ (1 + rate ÷ 100). From 120 you get back to 100 net and 20 VAT. The most common mistake is to take 20% off the gross (120 − 20% = 96): that is wrong, because VAT is charged on the net amount, not on the total.
Common VAT rates
- United Kingdom: 20% standard, 5% reduced (home energy, child car seats), 0% on most food, books and children's clothes.
- Germany: 19% standard, 7% reduced. France: 20% standard, 10% and 5.5% reduced.
- Italy: 22% standard, 10%, 5% and 4% reduced. Spain: 21%, 10% and 4%.
- Ireland: 23%. Sweden and Denmark: 25%. Switzerland: 8.1%.
Rates change with budget laws: for invoices and tax returns always check the rate in force for your product and country. For US sales tax, which is added at checkout and varies by state and city, use the custom rate.
When you need to remove VAT
Reverse calculation is useful when you only know the retail price and need the net amount: to record a receipt in your books, to compare "VAT included" and "VAT excluded" price lists, or to see how much VAT you paid on a purchase and can reclaim if you are VAT-registered.
Frequently asked questions
How do I remove 20% VAT from a price?
Divide the gross price by 1.20. Example: 240 ÷ 1.20 = 200 net and 40 VAT.
Why can't I just subtract 20%?
Because VAT is 20% of the net amount, not of the gross. Subtracting 20% from the total gives a net figure that is too low.
Which rate applies to my product?
It depends on the category and the country: most goods carry the standard rate, while food, books and energy often have reduced rates. When in doubt check your tax authority's tables or ask an accountant.