What VAT is and how it is calculated
Value Added Tax is a consumption tax charged as a percentage of a product’s price. Unlike US sales tax, which is added only at the final retail sale, VAT is collected in stages at each step of the supply chain — though the end consumer ultimately bears the full amount.
The maths in this tool covers both directions. In forward mode you have a net (pre-tax) figure and it adds the VAT to give the gross. In reverse mode you have a gross figure that already includes VAT and it extracts the tax by dividing by (1 + rate), which is the only correct way to back the tax out of a tax-inclusive price.
Reading the result
Net plus VAT always equals gross, so the three figures reconcile no matter which mode you use. The pie chart shows the split between the underlying net amount and the VAT portion, giving a quick sense of how much of the displayed price is tax.
Why reverse mode matters
In most VAT countries shop prices are quoted gross — inclusive of tax — so the reverse calculation is the one people actually need.
- Businesses use it to record the net cost and reclaimable VAT on a purchase.
- Travellers use it to estimate VAT refunds on eligible purchases.
- Anyone comparing a VAT-inclusive price with a pre-tax quote needs to strip the VAT out first.
A note on rates
VAT rates vary widely by country and often by product category, with reduced or zero rates for essentials such as food, books, or children’s goods. This calculator applies only the single rate you enter, so confirm the correct rate for your jurisdiction and product before relying on the figures.
Formula
forward: vat = net × rate; gross = net + vat. reverse: net = gross ÷ (1 + rate); vat = gross − netFrequently asked questions
- What is the difference from sales tax?
- VAT is collected in stages along the supply chain and is usually shown in the displayed price, while US sales tax is added at the final sale. The arithmetic here is the same percentage calculation.