One tax, many names: VAT and GST
VAT (value added tax) and GST (goods and services tax) are two names for essentially the same idea: a consumption tax charged as a percentage of the price, collected by businesses at each stage of production and sale, and ultimately paid by the final customer. The United Kingdom and most of the European Union call it VAT. Australia, Canada, New Zealand, India and Singapore call their version GST. The United States is the well-known exception — it has no national VAT, using state and local sales taxes instead, which are charged only at the final sale rather than at every stage. Whatever the local name, the arithmetic on this page is identical: a net price, a percentage rate, and a gross price that is the net price plus the tax.
Businesses care about the split because they usually account for the tax separately from their own revenue. The money you collect as VAT or GST is not your income — you hold it briefly and pass it to the tax authority, after deducting the tax you paid on your own business purchases. That is why invoices in VAT and GST countries show the net amount, the tax amount and the gross total as three separate lines, and why this calculator always shows all three.
The formulas, in both directions
Removing: net = gross ÷ (1 + rate ÷ 100) · tax = gross − net
Adding tax is a simple percentage of the net amount. Removing it is different: the gross price already contains the tax, so you recover the net amount by dividing by (1 + rate ÷ 100). Subtracting the rate from the gross price is the single most common VAT mistake — at a 20% rate it would take 20% off the gross price, which removes too much, because the tax was only ever 20% of the smaller net amount.
Standard, reduced and zero rates
Most countries run several rates at once. A standard rate — 20% in the UK, for example, and commonly somewhere between about 15% and 27% across Europe — applies to most goods and services. Reduced rates, often around 5% to 10%, apply to items governments want to keep cheaper, such as domestic energy, some foods, books, children's clothing or passenger transport, though the exact list differs sharply by country. A zero rate means the item is taxable in principle but at 0%: the price carries no tax, yet a business selling zero-rated goods can usually still reclaim tax on its costs, which is not the same as being exempt. The preset buttons above cover the three rates people reach for most often, but you can type any rate your country and product category require.
Worked example — both directions
Start with a net price of $100 and a rate of 20%. Adding the tax: $100 × 20% = $20 of tax, so the gross price is $120. Now run it backwards, as you would when a shelf price or a competitor's invoice already includes tax: a gross price of $120 at 20% divides by 1.20 to give a net amount of $100, and the tax inside it is $120 − $100 = $20. Notice the trap the division avoids: 20% of $120 is $24, so subtracting 20% would have left you with $96 — four dollars of phantom discount that was never tax at all. The tax inside a $120 gross price is 16.7% of that gross price, not 20% of it.
The same caution applies at every rate. At 5%, $100 net becomes $105 gross, and $105 gross contains $5 of tax. At 0%, net and gross are the same number, which is exactly what the zero-rate preset shows.
Worked example
A net price of $100 at 20% VAT becomes a gross price of $120, with $20 of tax. Working backwards, a gross price of $120 at 20% contains $100 net and $20 tax — found by dividing by 1.20, never by subtracting 20% of $120, which would wrongly give $96.
How to use this calculator
- Enter the amount you have — either the price before tax or the price including tax, depending on the direction you choose next.
- Enter the VAT or GST rate for your country and product, or tap one of the 20%, 5% or 0% preset buttons.
- Choose 'Add tax' if your amount is net and you need the customer's gross price, or 'Remove tax' if your amount is gross and you need the net and tax split.
- Read the three figures: net, tax and gross — the same three lines your invoice or tax return needs.
- If the tax share of the gross price surprises you, read the note under the result: at a 20% rate the tax is 16.7% of the gross price, not 20%.
Rounding, invoices and partial amounts
Tax authorities generally expect the tax on an invoice to be calculated on the invoice total (or, in some places, line by line) and rounded to the nearest cent or penny. When an invoice has many small lines, line-by-line rounding and total-based rounding can differ by a cent or two; either method is usually acceptable if you use it consistently, but mixing methods inside one set of accounts creates reconciliation headaches. This calculator works to full precision and displays cents, so if you are splitting one gross amount across several cost centres, split the net and tax figures it gives you rather than re-running each fragment separately.
VAT on discounts, deposits and tips
A discount taken before the tax is calculated reduces the taxable amount: a 10% discount on a $100 net price leaves $90 net, and at 20% the tax is $18, not $20. Deposits are trickier — in many VAT systems a deposit is taxed when it is received, not when the balance is paid — and voluntary tips and service charges are treated differently from country to country. Those edge cases depend on local rules, so use this page for the core percentage arithmetic and check the specific treatment with your local guidance or accountant. For pricing goods you sell, the Margin Calculator and Markup Calculator handle the profit side of the same price.