How to Calculate VAT
What is VAT?
Value Added Tax (VAT) is a consumption tax added at each stage of production and at the point of sale. Unlike US sales tax (added only at final sale), VAT is collected throughout the supply chain. Most countries outside the US use VAT.
Step-by-Step Guide
- 1To add VAT: Gross price = Net price × (1 + VAT rate)
- 2To remove VAT: Net price = Gross price / (1 + VAT rate)
- 3VAT amount = Gross − Net
- 4Businesses charge VAT to customers but reclaim VAT paid on purchases (input tax)
Worked Examples
Input
Net £100, UK VAT 20%
Result
VAT = £20, Gross = £120
£100 × 1.20
Input
Gross receipt €85, VAT 21%
Result
Net = €70.25, VAT = €14.75
€85 / 1.21
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