How to Calculate VAT

Adding VAT to a net price

Multiply the net (VAT-exclusive) price by the rate, then add it on.

• VAT = net × rate
• Gross = net × (1 + rate)
• Example: net 500 at 16% → VAT 80, gross 580.

Removing VAT from a gross price

This is where most people go wrong. You cannot simply subtract 16% from the gross amount, because the 16% applies to the net, not to the gross.

• Net = gross ÷ (1 + rate)
• Example: gross 580 at 16% → 580 ÷ 1.16 = 500, so the VAT contained is 80.
• Subtracting 16% instead would give 487.20 — wrong by nearly 13.

At a 20% rate, VAT is one fifth of the net price but one sixth of the gross price. That one-sixth shortcut (divide the gross by 6) is a quick way to check your arithmetic.

VAT fractions for mental arithmetic

Things to watch

VAT rules vary by country and by product. Many countries zero-rate basics such as unprocessed food and children’s clothing, apply a reduced rate to items like energy or books, and exempt financial services and insurance entirely.

If you are registered for VAT, you generally charge VAT on your sales (output tax) and reclaim VAT on your purchases (input tax), paying over the difference. Keep proper records and confirm the treatment of exports, digital services and cross-border sales with your tax authority.