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How to add VAT or sales tax
To add tax to a price, multiply the price before tax by the tax rate and add the result. The total is the price multiplied by (1 + rate ÷ 100).
Gross = net × (1 + rate ÷ 100)
Example: 100 plus 20% tax is 100 × 1.20 = 120, of which 20 is tax.
How to remove VAT from a price
When a price already includes tax, divide it by (1 + rate ÷ 100) to get the price before tax. Taking 20% off the total gives the wrong answer, because the tax was calculated on the smaller net price.
Tax = gross − net
Example: 120 including 20% tax is 120 ÷ 1.20 = 100 before tax. Subtracting 20% of 120 would give 96, which is too low.
VAT, GST and sales tax
VAT (value added tax) and GST (goods and services tax) are charged at each step of the supply chain and are usually included in shop prices. Sales tax, common in the United States, is usually added at the checkout. The maths is the same for all of them; only the rate changes. Rates differ by country, region and type of product, so check the current rate with your local tax authority.
Worked examples
| Situation | Rate | Before tax | Tax | Total |
|---|---|---|---|---|
| Add tax to an invoice | 10% | 1,250.00 | 125.00 | 1,375.00 |
| Remove tax from a receipt | 20% | 75.00 | 15.00 | 90.00 |
| Sales tax at checkout | 8% | 49.99 | 4.00 | 53.99 |
Tax amounts are usually rounded to two decimals per invoice line, so a total you calculate here can differ by a cent from a receipt that rounded each item separately.
Tips for businesses
- Keep both the net price and the tax amount on every invoice. Most tax authorities require them shown separately.
- When you set a shelf price that includes tax, work backwards with "Remove tax" so your margin is based on the net price.
- Different products can carry different rates in the same country, so check the rate for each item.
Frequently asked questions
How do I calculate VAT on a price?
Multiply the price before tax by the VAT rate and divide by 100. At 20%, a price of 50 has 10 of VAT, so the total is 60.
How do I remove VAT from a total?
Divide the total by (1 + rate ÷ 100). A total of 120 at 20% VAT is 120 ÷ 1.20 = 100 before VAT.
What is the difference between VAT and sales tax?
VAT is charged at each stage of production and is usually included in the shelf price. Sales tax is charged once to the final buyer and is often added at the checkout. Both use the same calculation.
Which tax rate should I use?
Use the rate that applies in your country or state for that product. Rates change from time to time, so check your local tax authority for the current figure.