What VAT (and GST) actually is
Value-added tax is a consumption tax levied as a percentage of the price of goods and services. The same idea travels under different names — it is GST, the goods and services tax, in Australia, Canada, India, and elsewhere — but the mechanics are identical. The tax is expressed as a rate, that rate is applied to the net (pre-tax) price, and the result is the gross (tax-inclusive) price the customer pays. So a net price plus its VAT equals the gross price, and the gross price minus its VAT returns the net.
Adding and removing VAT
Gross = Net × (1 + rate)
Net = Gross ÷ (1 + rate)
where rate is the VAT percentage written as a decimal (20% becomes 0.20). To add VAT you multiply the net by one-plus-the-rate; to remove it you divide the gross by one-plus-the-rate. The VAT amount is simply the difference between the two.
Worked example
Take a $100.00 net price with VAT at 20%. Adding the tax works like this:
| Step | Amount |
|---|---|
| Net price (excl. VAT) | $100.00 |
| + VAT (20%)20% of the net price — VAT is charged on the net amount, never on the gross | $20.00 |
| = Gross price (incl. VAT)net × (1 + 0.2) — divide this gross by 1.2 to get back to the net | $120.00 |
Computed with this calculator's default settings — open the tool above and you'll see the same numbers, then change the price, rate, or direction to match your own.
Why you divide, rather than subtract, to remove VAT
The single most common mistake is backing VAT out of a gross total by subtracting the rate — taking 20% off a $120 total to get $96. That is wrong. The VAT was charged on the net price of $100, so it is $20, and the net price is $100 — not $96. Because the percentage was applied to the smaller net figure, you must reverse that multiplication by dividing the gross by one-plus-the-rate: $120 ÷ 1.20 = $100. This divide-by-(1 + rate) rule is what keeps the net price, the VAT, and the gross total internally consistent, and it is exactly what the calculator above does in “Remove VAT” mode. The same reversal logic appears whenever a percentage is baked into a total — see oursales tax calculatorfor the single-stage equivalent, or thediscount calculatorfor working a markdown back out of a sale price.
How VAT differs from US sales tax
Although the per-price arithmetic is the same, VAT and US sales tax are structurally different taxes. VAT is multi-stage: it is collected at every step of production and distribution, with each business reclaiming the VAT it paid on inputs so that the net burden ultimately falls on the final consumer. US sales tax issingle-stage: it is charged only once, at the final retail sale, and businesses buying for resale are exempt. There is a practical difference too — VAT is usually shown in the sticker price, so the figure on the shelf is what you pay, whereas US sales tax is normally added at the register on top of the displayed price. For the price of a single transaction, though, adding or removing the tax uses the same two formulas above.
Frequently asked questions
What is VAT (and how does GST relate to it)?
VAT — value-added tax — is a consumption tax charged as a percentage of a product or service’s net price. The same tax is called GST (goods and services tax) in countries such as Australia, Canada, and India. Whatever the name, it is added on top of the net (pre-tax) price to give the gross (tax-inclusive) price a customer actually pays, and the arithmetic is identical: the rate is a percentage of the net amount.
How do I add VAT to a net price?
Multiply the net price by the VAT rate to get the VAT amount, then add it back to the net price for the gross total. For a $100 net price at 20% VAT, the VAT is $20 and the gross price is $120. As a single step, gross = net × (1 + rate), so $100 × 1.20 = $120. This is what the calculator does in “Add VAT” mode.
How do I correctly remove VAT from a gross total?
You divide the gross total by one plus the rate — you do not subtract the rate. With 20% VAT, the net price is gross ÷ 1.20, and the VAT is the difference. From a $120 gross total that gives $100 net and $20 VAT. Subtracting 20% of the gross ($24) would be wrong, because the VAT was charged on the smaller net price, not on the gross total.
Why can’t I just subtract the rate to back VAT out?
Because the percentage was applied to the net price, which is smaller than the gross total. Twenty percent of the net is a smaller dollar figure than twenty percent of the gross, so subtracting the rate from the gross removes too much. The only way to recover the original net price is to reverse the multiplication: divide the gross by (1 + rate). That is the divide-by-one-plus-the-rate rule.
How is VAT different from US sales tax?
VAT is a multi-stage tax collected at every step of production and distribution, with businesses reclaiming the VAT they pay so the net burden falls on the final consumer. US sales tax is single-stage, charged only once at the final retail sale. VAT is also usually built into the sticker price, whereas US sales tax is typically added at the register. The per-price math of adding or removing the tax, however, is the same in both systems.
Sources
The official figures this page quotes are drawn from the primary sources above — check them (or a qualified professional) before relying on a result.
Disclaimer: This calculator is foreducation and illustration only. VAT and GST rules, rates, registration thresholds, and exemptions vary by country and change over time, and the figures here are simple per-price calculations rather than tax advice. Nothing on this page is tax, accounting, or legal advice.