The two VAT formulas
Almost every VAT question is one of these two. Write the rate as a decimal — 20% is 0.20, 7.5% is 0.075:
- Adding VAT: VAT = price × rate, and total = price × (1 + rate).
- Removing VAT from a VAT-inclusive total: price before VAT = total ÷ (1 + rate), and VAT = total − price before VAT.
A shortcut for the second one: the VAT inside any VAT-inclusive amount is rate ÷ (100 + rate)of it. At 20% that is 20/120 — one sixth, about 16.67%. That is why taking the full rate of a total that already includes VAT always gives too much.
Worked examples
| Situation | Before tax | Tax | Total |
|---|---|---|---|
| Add 20% VAT to 100 | 100.00 | 20.00 | 120.00 |
| Remove 20% VAT from 120 | 100.00 | 20.00 | 120.00 |
| Remove 20% VAT from 1,000 | 833.33 | 166.67 | 1,000.00 |
| Add 18% VAT to 1,000 | 1,000.00 | 180.00 | 1,180.00 |
| Remove 15% GST from 1,150 | 1,000.00 | 150.00 | 1,150.00 |
Amounts are rounded to two decimal places. Tick “Round to whole numbers” for currencies without cents.
The most common VAT mistake
A customer pays 120, VAT at 20% included. Taking 20% of 120 gives 24 — but the real VAT is 20. The rate applies to the price before VAT, so when you start from a VAT-inclusive total you must divide by 1 + the rate first. Get this wrong across a month of sales and you will overstate the tax you owe and understate your income.
VAT, GST and sales tax — what’s the difference?
| Tax | How it works | Calculated the same way? |
|---|---|---|
| VAT (value added tax) | Charged at each stage of the supply chain; registered businesses claim back the VAT they pay on purchases. | Yes |
| GST (goods and services tax) | A VAT under another name, used in several countries. | Yes |
| Sales tax | Usually charged only on the final sale to the consumer, and rates can vary by state or city. | Yes — a percentage of the price |
Standard, reduced, zero-rated and exempt
Most VAT systems have a standard rate for most goods and services, one or morereduced rates for things like food or books, a zero rate (often for exports), and exempt supplies that carry no VAT at all. The difference between zero-rated and exempt matters: on zero-rated sales a registered business can still reclaim the VAT on its purchases; on exempt sales it usually cannot. Check which group your products fall into with your tax authority.
Put the numbers on an invoice
The invoice generator calculates VAT, GST or sales tax line by line and shows it on a clean PDF. For a running picture of your sales and the tax inside them, theCi-Balanced app tracks every sale as you make it.