How to add or remove VAT and GST
VAT and GST are consumption taxes added on top of the net price. Adding tax multiplies the net price by (1 + rate); removing tax from a gross price divides by (1 + rate). Simply subtracting the rate is the most common mistake.
Formula
Add VAT: Gross = Net x (1 + Rate) Remove VAT: Net = Gross / (1 + Rate) VAT amount = Gross - Net
Example
Net price 100 EUR at 20% VAT: gross = 120 EUR, VAT = 20 EUR. Gross price 120 EUR including 20% VAT: net = 120 / 1.2 = 100 EUR (not 96 EUR).
Frequently asked questions
How do I calculate VAT from a gross amount?
Divide the gross amount by (1 + VAT rate) to get the net price; the difference is the VAT. For 20% VAT: 120 / 1.2 = 100 net and 20 VAT.
What is the difference between VAT and GST?
Both are value-added consumption taxes; the name depends on the country (VAT in the EU and UK, GST in Australia, Canada, India, Singapore). The calculation is the same.
Why can't I just subtract 20% to remove VAT?
Because VAT is calculated on the net price, not the gross. Subtracting 20% from 120 gives 96, but the correct net is 100.