Tax, Payroll & Insurance Sales Tax, VAT & Duties EU VAT Directive 2006/112/EC

VAT Calculator

Enter a price and a rate and this calculator gives you the three numbers a VAT-registered business needs: the net (VAT-exclusive) amount, the VAT itself, and the gross (VAT-inclusive) amount. Tell it whether the figure you have is net or gross and it works in whichever direction you need. It then does the part most price calculators skip — netting the output VAT you charged customers against the input VAT you paid suppliers, so you see the amount that actually leaves your bank account on the VAT return rather than the tax on a single invoice.

Calculator

This calculator runs in your browser. Enable JavaScript for live results — the inputs, formula and worked example below remain fully readable without it.

Inputs this calculator takes, with typical values
InputWhat to enterExample
Amount you haveEnter the figure printed on the quote or invoice, in your own currency; the next field says whether it already includes VAT.1000
That amount isPick gross if the figure is what the customer pays in total, net if VAT still has to be added.Net — VAT-exclusive
VAT rateThe rate for the supply and the country of taxation — 20% is the UK and French standard rate.20 %
Output VAT on sales this periodTotal VAT you charged customers across the return period; take it from your sales day book.24000
Input VAT on purchases this periodTotal recoverable VAT on purchases; exclude anything blocked from recovery such as business entertainment.9500

It returns

  • VAT on this amount — The tax element of the single figure you entered above.
  • Net (VAT-exclusive) amount
  • Gross (VAT-inclusive) amount
  • VAT as a share of the gross price — The VAT fraction — multiply any gross price by this to extract its VAT.
  • VAT payable to the authority — Output VAT less input VAT. A negative figure is a repayment claim.

The formula

VAT=net⁢r,net=gross1+r
VAT fraction=r1+r
VATpayable=VAToutput−VATinput

In plain text: VAT = net × r; net = gross ÷ (1 + r); VAT payable = output VAT − input VAT

  • netVAT-exclusive value of the supply (currency)
  • grossVAT-inclusive amount the customer pays (currency)
  • rVAT rate expressed as a decimal (20% → 0.20) (decimal)
  • VATTax charged on the supply (currency)

The second identity is the first one rearranged. Because VAT is charged on the net value, you can never recover it from a gross price by taking a straight percentage of the gross.

Updated Category Sales Tax, VAT & Duties Verified against published test cases Reading time 12 min

What value added tax actually charges, and who really pays it

Value added tax is a tax on consumption collected in instalments along the supply chain. Every registered business in the chain charges VAT on what it sells — its output tax — and reclaims the VAT it was charged on what it bought — its input tax. It hands over only the difference. The tax therefore falls on the final, unregistered consumer, while registered businesses act as unpaid collectors.

That two-sided design is why a VAT calculation has two distinct jobs, and why treating them as one is the usual source of error. The first job is arithmetic on a single price: given a rate, split a figure into net and tax. The second is a period position: add up all the output tax on your sales, subtract all the recoverable input tax on your purchases, and pay the balance. A supplier quoting you "£1,200 including VAT" is talking about the first. Your quarterly return is entirely about the second.

The common EU framework is Council Directive 2006/112/EC, which fixes the structure — taxable person, taxable supply, place of supply, right of deduction — and sets a floor of 15% on the standard rate while leaving each member state to choose its own rates within limits. The United Kingdom left the EU system but kept a near-identical mechanic under the Value Added Tax Act 1994. Around 175 countries operate a tax of this shape, some calling it GST; if you are pricing in one of those, the GST calculator uses exactly the same arithmetic under a different name.

Why you cannot take 20% off a gross price to find the VAT

VAT is charged on the net amount, so the rate is a percentage of the smaller of the two figures. Going forward is easy: multiply the net by the rate. Going backwards is where people lose money.

If you take 20% off a £120 gross price you get £24, and you conclude the net is £96. Check it: £96 plus 20% is £115.20, not £120. The correct move is to divide by 1 + r. £120 ÷ 1.20 = £100 net, £20 VAT. The error is not small — at a 20% rate the naive method overstates the tax by exactly 20%, because 0.20 × gross = 0.20 × net × 1.20.

The shortcut that removes the temptation is the VAT fraction, r ÷ (1 + r). At 20% it is 20/120 = 1/6, so you can extract the VAT from any inclusive price by dividing by six. At 5% it is 1/21; at 25% it is exactly one fifth. The calculator shows the fraction for whatever rate you enter, and the reference table below lists it for the standard rates in use across the EU. If you routinely work backwards from till receipts, the dedicated reverse VAT calculator is set up for that direction by default.

The return position is deliberately simple arithmetic — output tax minus input tax — but the difficulty lives in what belongs in each total. Output VAT includes VAT on sales you have invoiced, plus VAT you must self-account for on reverse-charge purchases. Input VAT includes only tax you hold a valid invoice for and that is not blocked from recovery; business entertainment and, in most jurisdictions, the purchase of a car available for private use are blocked outright.

Worked example: a quarter with 24,000 output VAT and 9,500 input VAT

You run a UK-registered design studio on the standard 20% rate. A client asks for a quote on a project you have priced at £1,000 net, and your bookkeeper needs the quarter's return.

  1. Convert the rate. r = 20 ÷ 100 = 0.20.
  2. VAT on the quote. VAT = 1,000 × 0.20 = £200.00.
  3. Gross price to show the client. 1,000 + 200 = £1,200.00.
  4. Check it in reverse. 1,200 ÷ 1.20 = 1,000.00 net, and 1,200 − 1,000 = 200.00 VAT. The two directions agree.
  5. VAT fraction. 0.20 ÷ 1.20 = 0.166667, so VAT is 16.667% of the gross. Confirm: 1,200 × 0.166667 = £200.00.
  6. Output tax for the quarter. Across all invoices raised you charged £24,000.
  7. Input tax for the quarter. Your recoverable purchase VAT totals £9,500.
  8. VAT payable. 24,000 − 9,500 = £14,500.00 due to HMRC.

Note what step 8 is not. It is not 20% of your profit, and it is not related to your income tax. It is the tax on the value you added: your net sales of £120,000 less your net taxable purchases of £47,500 gives £72,500 of added value, and 20% of £72,500 is £14,500 — the same figure the subtraction produced. That identity is the whole idea of the tax, and it is worth checking once by hand so the mechanism stops feeling arbitrary.

Standard VAT rates and their VAT fractions

Standard rates in selected jurisdictions, with the fraction that extracts VAT from a gross price. Fractions are r ÷ (1 + r) evaluated at each rate.
JurisdictionStandard rateVAT fractionShortcut
Luxembourg17%14.530%÷ 6.882
Germany19%15.966%÷ 6.263
United Kingdom, France20%16.667%÷ 6
Netherlands, Spain, Belgium21%17.355%÷ 5.762
Italy, Slovenia22%18.033%÷ 5.545
Ireland, Poland, Portugal23%18.699%÷ 5.348
Denmark, Sweden25%20.000%÷ 5
Hungary27%21.260%÷ 4.704

Rates change by legislation and reduced rates apply to specific goods and services in every one of these countries. Confirm the current rate against the European Commission's VAT rates database or the national tax authority before you invoice.

How to read your VAT return position

A positive payable figure means you collected more tax than you paid and owe the balance. A negative figure means the opposite and you are claiming a repayment. Neither is a verdict on how the business is trading — it is a statement about the mix and timing of your invoices.

A repayment position is normal and permanent for some businesses. Exporters and zero-rated suppliers charge 0% output tax while recovering input tax in full, so they claim every period; a UK bakery selling most-rate-zero food is a textbook case. It is also normal and temporary for any business in a heavy capital-spending quarter, because the input tax on a new fit-out lands in one return while the output tax it generates arrives over years. Repayment returns attract more verification activity than payment returns, so keep the underlying purchase invoices retrievable.

What should worry you is a payable figure that swings sharply without a matching change in trading. The usual causes are mechanical rather than commercial: an invoice raised in the wrong period, a credit note not processed, a reverse-charge purchase entered on only one side of the return, or a supply coded to the wrong rate. Before you accept a surprising number, reconcile the output tax total against net sales — at a single rate, output VAT should equal net sales × r almost exactly, and a discrepancy of more than a rounding-level amount points at mis-coded supplies.

Watch the cash-flow consequence too. Under invoice accounting you owe output tax on invoices you have raised, not on cash you have collected, so a large unpaid sales invoice can leave you funding the tax authority out of working capital. Most systems offer a cash accounting scheme below a turnover threshold that moves the trigger to payment date; if a slow-paying customer base is squeezing you, that scheme is usually worth more than any pricing change.

Mistakes that make a VAT figure wrong

  • Taking a straight percentage off a gross price. The single most common error. Divide by 1 + r, or multiply by the VAT fraction.
  • Rounding VAT per line and again on the total. Compute VAT on the invoice total where the rate is uniform, or the sum of the rounded line amounts will drift from the rounded total.
  • Confusing zero-rated with exempt. Both charge no VAT to the customer, but zero-rating preserves your right to recover input tax and exemption generally destroys it. Getting this wrong changes your recoverable input VAT, not just your output VAT.
  • Recovering blocked input tax. Business entertainment and cars available for private use are typically not recoverable, however valid the invoice.
  • Applying your home rate to a cross-border supply. Place-of-supply rules decide which country taxes a transaction; for most business-to-business services the customer self-accounts under the reverse charge and you charge nothing.
  • Claiming without a valid VAT invoice. A bank statement is not evidence of input tax. The invoice must carry the supplier's VAT number and the tax amount.
  • Forgetting the registration threshold. Once taxable turnover crosses the national threshold you must register, and the liability starts from the required registration date rather than from when you noticed.

This calculator does not decide the rate or the place of supply

It applies whatever rate you type to whatever amount you type. It cannot tell you whether your supply is standard-rated, reduced-rated, zero-rated or exempt, and it cannot tell you which country has the right to tax it. Those two questions decide far more tax than the arithmetic does, and both are governed by the detailed rules of Directive 2006/112/EC as implemented locally. For imported goods the position is different again: duty is calculated first and VAT is charged on the duty-inclusive value, which the import duty and tax calculator handles.

A United States retail sales tax reaches the same destination by a different route: it is charged once, at the final retail sale, and business-to-business purchases move under resale certificates instead of being taxed and reclaimed. Because it is collected in a single step, there is no input-tax credit and no return-level netting — the sales tax calculator needs only the forward calculation, and the reverse sales tax calculator only the backward one.

The practical difference is where the system breaks. Sales tax leaks when a business misuses a resale certificate, and it cascades when it is charged on a business input, which is why US states maintain long exemption schedules. VAT does not cascade, because every registered buyer recovers what it paid, but it needs the whole chain to file, which is why the invoice is such a load-bearing document and why VAT fraud usually involves fabricated input claims rather than under-declared sales.

GST, as operated in Australia, Canada, India, New Zealand and Singapore, is a VAT with a different label. Canada layers a federal GST with provincial taxes and harmonised HST rates; India runs a dual CGST/SGST split with IGST on interstate supplies. The netting arithmetic on this page holds in all of them — only the rate, the registration threshold and the recovery restrictions change.

One more comparison matters for pricing decisions. Because VAT sits on top of your net price, an increase in the rate does not automatically reach the customer: you choose whether to hold the gross price and absorb the change in your margin, or hold the net price and pass it on. Work that decision in net terms. A gross price held constant through a rise from 20% to 22% cuts your net revenue from gross ÷ 1.20 to gross ÷ 1.22, a fall of 1.64% — small enough to look survivable on a spreadsheet and large enough to matter on a thin margin.

Key terms

Output tax
VAT you charge on your own supplies. It is a debt to the tax authority from the moment the tax point occurs, whether or not the customer has paid you.
Input tax
VAT charged to you by suppliers on goods and services used for taxable business purposes. Recoverable only where you hold a valid VAT invoice and the item is not blocked.
Tax point
The date that fixes which return period a supply falls into — normally the invoice date, but the earlier of payment or delivery in several common situations.
Reverse charge
A mechanism that moves the obligation to account for VAT from the supplier to the customer. The customer records the same amount as both output and input tax, so a fully taxable business is left neutral.
VAT fraction
r ÷ (1 + r). Multiply a VAT-inclusive price by this to obtain the tax it contains — 1/6 at a 20% rate.

Frequently asked questions

How do I remove 20% VAT from a price?

Divide the gross price by 1.20, not by 1.2 after subtracting 20%. A £150 inclusive price gives 150 ÷ 1.20 = £125.00 net and £25.00 VAT. Equivalently, multiply the gross by the VAT fraction 1/6: 150 ÷ 6 = £25.00. Subtracting 20% of £150 would give £30 of VAT, which is 20% too much — a mistake that quietly overstates recoverable input tax on every receipt you process that way.

What is the difference between output VAT and input VAT?

Output VAT is tax you charge customers; input VAT is tax suppliers charge you. Your return pays over the excess of output over input. Because you recover input tax, VAT is not a cost to a fully taxable registered business — it is a cost only to final consumers, to exempt businesses that cannot recover, and to anyone below the registration threshold who has chosen not to register.

Why is my VAT return a repayment instead of a payment?

Because your recoverable input tax exceeded your output tax in the period. The two usual reasons are a zero-rated or export-heavy sales mix, which produces no output tax while preserving recovery, and a quarter with unusually large capital purchases. Both are legitimate. Keep the purchase invoices accessible, since repayment claims are verified more often than payments.

Is zero-rated the same as exempt?

No, and the difference is worth real money. A zero-rated supply is taxable at 0%, so you charge nothing and still recover input tax on your costs. An exempt supply is outside the charge, so you charge nothing and generally cannot recover the related input tax. Two businesses charging their customers the same nothing can therefore have very different recoverable positions.

Do I charge VAT to a customer in another country?

It depends on the place-of-supply rules, not on where you are. For most business-to-business services supplied cross-border, the place of supply moves to the customer's country and the customer accounts for the tax under the reverse charge, so you invoice without VAT and note the reverse charge on the invoice. Business-to-consumer supplies, goods, digital services and land all follow different rules. Confirm the position before you invoice.

What VAT rate should I use?

The standard rate of the country with taxing rights, unless the supply appears on that country's reduced, zero or exempt schedule. Standard rates in the EU currently range from 17% in Luxembourg to 27% in Hungary, with the UK at 20%. Reduced rates apply to specified categories such as food, books, passenger transport and domestic energy, and the categories differ materially between countries.

How should I round VAT on an invoice?

Calculate the VAT on the total value of the supplies at each rate, then round once. Rounding every line and adding the results introduces a drift of up to half a penny per line, which on a long invoice can differ from the correctly rounded total by several pence and will not reconcile against your sales ledger. Where a tax authority permits line-level rounding it also specifies the direction, so follow the local rule rather than your spreadsheet's default.

Does this calculator work for GST?

Yes. GST in Australia, New Zealand, Canada, Singapore and India uses the same net, gross and credit-netting arithmetic; only the rate and the recovery rules differ. Enter your GST rate in the rate field and read output VAT as GST collected and input VAT as input tax credits. The GST calculator is the same engine with GST labelling.

References

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