VAT-inclusive and exclusive prices: formulas and examples

Adding VAT and extracting VAT from an inclusive amount require different calculations. First identify whether your starting amount already includes tax. The 20% rate below is an illustration, not a determination of the rate applicable to your transaction.

Add VAT to an exclusive amount

VAT = net amount × rate ÷ 100. Gross amount = net amount × (1 + rate ÷ 100).

With a net amount of 1,000 and an illustrative rate of 20%, VAT is 200 and the total is 1,200. Enter 1,000 and 20 in the VAT calculator and read the add-VAT results.

Extract VAT from an inclusive amount

Net amount = gross amount ÷ (1 + rate ÷ 100). Included VAT = gross amount − net amount.

Starting with 1,200 gives 1,200 ÷ 1.20 = 1,000 net, leaving 200 of VAT. The calculator presents both interpretations of the entered amount. Use the result group that matches whether your input is net or gross.

Why not subtract 20% from 1,200?

Twenty percent of 1,200 is 240. Subtracting it leaves 960, which is not the original net amount. The tax was calculated on 1,000, not on the inclusive total. Division reverses the original multiplication correctly.

Mixed rates and rounding

Calculate items with different rates separately. Line-level and invoice-total rounding can create small differences. This tool explains arithmetic; it does not issue invoices or determine tax eligibility.

Zero-rating and exemption can have different accounting consequences even if a simple price calculation looks similar. Check the official UK VAT rate guide when dealing with a UK transaction, and the relevant authority for other jurisdictions.

Connect VAT to profitability

Comparing a VAT-inclusive selling price directly with a VAT-exclusive cost can overstate profit. The marketplace fee example separates 200 of VAT from a sale of 1,200. That sales tax component alone does not establish net tax due after input tax and other adjustments.