What is VAT?
Value Added Tax (VAT) is a consumption tax placed on products and services whenever value is added at each stage of the supply chain, from production to the point of sale. VAT is collected by businesses on behalf of the government and is ultimately paid by the end consumer.
When to Use a VAT Calculator
A VAT calculator is a useful tool in various scenarios:
- When you need to calculate the VAT amount included in a total price
- When you want to add VAT to a net amount to determine the gross price
- When preparing invoices or financial statements that require VAT calculations
How to Calculate VAT
There are two main scenarios when calculating VAT:
1. Adding VAT to a net amount:
VAT Amount = Net Amount × (VAT Rate ÷ 100)
Gross Amount = Net Amount + VAT Amount
2. Extracting VAT from a gross amount:
Net Amount = Gross Amount ÷ (1 + (VAT Rate ÷ 100))
VAT Amount = Gross Amount - Net Amount
Examples
Example 1: Adding VAT to a Net Amount
Calculate the VAT and gross amount for a product with a net price of $100 and a VAT rate of 20%.
| Input/Calculation | Value |
|---|---|
| Net Amount | $100.00 |
| VAT Rate | 20% |
| VAT Amount (Net × VAT Rate) | $20.00 |
| Gross Amount (Net + VAT) | $120.00 |
Example 2: Extracting VAT from a Gross Amount
Calculate the net amount and VAT from a gross price of $240 with a VAT rate of 20%.
| Input/Calculation | Value |
|---|---|
| Gross Amount | $240.00 |
| VAT Rate | 20% |
| Net Amount (Gross ÷ (1 + (VAT Rate ÷ 100))) | $200.00 |
| VAT Amount (Gross - Net) | $40.00 |
Example 3: Different VAT Rate
Calculate the VAT and gross amount for a service with a net price of $500 and a VAT rate of 5%.
| Input/Calculation | Value |
|---|---|
| Net Amount | $500.00 |
| VAT Rate | 5% |
| VAT Amount (Net × VAT Rate) | $25.00 |
| Gross Amount (Net + VAT) | $525.00 |