You see a price of 1,075 on an invoice and you know it includes 7.5 percent VAT. What was the price before tax?
If your answer was “take 7.5 percent off”, you’re in good company, and you’re also wrong. It’s one of the most common VAT slips in small businesses. This VAT calculator does the sum the right way round, in both directions, for any rate.
How to use the VAT Calculator#
- Choose what you want to do. Pick Add VAT if your price is without tax. Pick Remove VAT if it already includes tax.
- Enter the amount. Type the price in any currency.
- Enter the VAT rate. Use the rate that applies to what you’re buying or selling.
- Read the result. You get the price with VAT, the price without VAT and the VAT amount.
Adding VAT#
Adding VAT is the easy direction. Multiply the net price by one plus the rate.
With a net price of 1,000 and a rate of 7.5 percent, the VAT is 75 and the price with VAT is 1,075.
Removing VAT (and the mistake everyone makes)#
Going the other way, you can’t subtract the percentage from the gross price, because the VAT was worked out on the smaller number. You have to divide.
Take the 1,075 invoice. Divide by 1.075 and you get 1,000, with 75 of it VAT. If you took 7.5 percent off 1,075 instead, you would get 994.38 and the books would be out by 5.62 on one line. Multiply that by a few thousand invoices and it hurts.
Handy divisors and VAT shares#
If you work with the same rates often, these numbers save time. The last column shows how much of a VAT-inclusive price is tax:
| VAT rate | Multiply net by | Divide gross by | VAT share of gross |
|---|---|---|---|
| 5% | 1.05 | 1.05 | 4.76% |
| 7.5% | 1.075 | 1.075 | 6.98% |
| 10% | 1.10 | 1.10 | 9.09% |
| 15% | 1.15 | 1.15 | 13.04% |
| 16% | 1.16 | 1.16 | 13.79% |
| 19% | 1.19 | 1.19 | 15.97% |
| 20% | 1.20 | 1.20 | 16.67% |
Which rate should you use?#
VAT rates differ by country, and often by type of goods. At the time of writing, Nigeria charges 7.5 percent, which has applied since February 2020. The UK standard rate is 20 percent, Germany’s is 19 percent, South Africa’s is 15 percent and Kenya’s is 16 percent. Some countries have reduced rates for food, books or medicine, and some goods are exempt or zero-rated. Rates change, so check your tax authority’s current guidance before you put a number on an invoice.
How VAT works for a business#
VAT is collected in stages. A business charges VAT on what it sells, called output VAT, and can usually reclaim the VAT it paid on what it bought, called input VAT. It pays the difference to the tax authority. The VAT on an invoice isn’t the seller’s income, which is why getting the split between net and gross right matters for your bookkeeping.
If you sell goods in the United States, you’re probably looking for the sales tax calculator instead. Sales tax is added at the till and works a bit differently.
Examples with a 7.5 percent rate#
Add VAT to a net price of ₦20,000 at 7.5 percent: the VAT is ₦1,500 and the gross price is ₦21,500. Now remove it from a gross price of ₦21,500: divide by 1.075 to get ₦20,000, and the VAT inside the price is ₦1,500, which is 6.98 percent of the gross price, not 7.5 percent. That gap is the reason the “take 7.5 percent off” shortcut is wrong. At a rate of 20 percent, the VAT is exactly one sixth of the gross price.
Frequently asked questions#
Multiply the price by 1 plus the VAT rate. For 7.5 percent, multiply by 1.075.
Divide the VAT-inclusive price by 1 plus the VAT rate. For 7.5 percent, divide by 1.075.
Because the VAT was calculated on the lower, VAT-free price. Subtracting the same percentage from the bigger number removes too little.
Net is the price without VAT. Gross is the price with VAT included.
It’s 7.5 percent at the time of writing. Check the Federal Inland Revenue Service or your accountant for the current position.
The final consumer bears it, but businesses collect it. A VAT-registered business charges VAT on its sales, subtracts the VAT it paid on its own purchases, and sends the difference to the tax authority. Registration rules and thresholds vary, so check with the tax authority or an accountant.