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UK: 20% | EU: 19–25% | Custom: enter any rate
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VAT Amount
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How VAT Calculation Works
VAT (Value Added Tax) is a consumption tax applied at each stage of the supply chain. For most businesses and consumers, there are two common calculations: adding VAT to a net price to get the gross (inclusive) price, and removing VAT from a gross price to find the original net price.
VAT Formulas
Adding VAT: Gross = Net × (1 + VAT%)
VAT Amount = Net × VAT%
Removing VAT: Net = Gross ÷ (1 + VAT%)
VAT Amount = Gross − Net = Gross × VAT% ÷ (1 + VAT%)
Example at 20%: Net £100 → VAT £20 → Gross £120. Removing: Gross £120 → VAT = £120 × 0.20/1.20 = £20 → Net £100.
💡 Common mistake: To remove 20% VAT, do NOT multiply by 0.80. That gives the wrong answer (£96, not £100). Always divide by 1.20 (or 1 + rate) to correctly back out VAT from a gross amount.
Frequently Asked Questions
The UK standard VAT rate is 20% on most goods and services. A reduced rate of 5% applies to domestic energy, children's car seats, and some social housing work. A zero rate (0%) applies to food, children's clothing, books, and most public transport. Businesses with annual taxable turnover above £90,000 (2024) must register for VAT.
To remove VAT from a gross (VAT-inclusive) price, divide by (1 + VAT rate). For 20% VAT: Net = Gross ÷ 1.20. For 5% VAT: Net = Gross ÷ 1.05. The VAT amount = Gross − Net. This is called the "VAT exclusive" price or ex-VAT price.
VAT and GST (Goods and Services Tax) are essentially the same type of tax — a multi-stage consumption tax collected at each stage of production. The term "GST" is used in Australia, Canada, New Zealand, India, and Singapore. "VAT" is used in the UK, EU, and most of the world. The US has neither — instead using state-level sales tax collected only at the final point of sale.
Generally, exports of goods are zero-rated for VAT purposes in most countries. You do not charge VAT to overseas customers on exported goods. Services can be more complex — the VAT treatment depends on the nature of the service, where the customer is based, and whether they are a business or consumer (B2B vs B2C). Always consult a tax advisor for cross-border VAT guidance.
As of April 2024, the UK VAT registration threshold is £90,000 of taxable turnover in any rolling 12-month period. Once you exceed this, you must register within 30 days. You can also voluntarily register below this threshold — useful if you make significant VATable purchases and want to reclaim input VAT. Deregistration is possible if turnover drops below £88,000.
Highest: Hungary 27%, Sweden/Norway/Denmark/Croatia 25%. Lowest major rates: Switzerland 8.1%, Japan 10%, Australia (GST) 10%, Canada (GST) 5%. The US has no federal VAT — it uses state/local sales tax (0–10%). Most EU countries range 20–25%, with reduced rates of 5–15% for food and medicine. VAT is used by 170+ countries; the US is the only major economy without a federal value-added tax.
No. Sales tax is collected only at the final retail sale. VAT is collected at every production stage — each business pays VAT on inputs and charges VAT on outputs, remitting the net difference. Both generate the same total tax at the same rate on the same base, but VAT's multi-stage collection is harder to evade and creates a self-auditing mechanism through the invoice chain.
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