How to Add or Remove VAT and Sales Tax From a Price

Whether it's VAT in Europe or sales tax in the US, the math is the same. Adding tax is easy; removing it is where most people slip up.

Adding tax to a net price

At a 20% VAT rate, a £50 item costs 50 × 1.20 = £60, of which £10 is tax.

US sales tax works the same way, but it's usually added at the register rather than included in the shelf price. At 8.25%, a $40 purchase costs 40 × 1.0825 = $43.30.

Removing tax from a gross price

Divide, don't subtract:

£60 including 20% VAT is 60 ÷ 1.20 = £50 net, and the tax is £10.

The common mistake

Taking 20% off £60 gives £48, not £50, because the 20% was calculated on the net price (£50), not on the total. The tax share of a gross price is Rate ÷ (1 + Rate):

• 20% rate: tax is 1/6 of the gross (16.67%)
• 10% rate: tax is 1/11 of the gross (9.09%)
• 5% rate: tax is 1/21 of the gross (4.76%)

Rates vary

VAT and sales tax rates differ by country, by state, county or city, and often by the type of product. Food, children's clothing and books often have reduced or zero rates. Always check the rate that applies to your sale.

For small businesses

If you're registered for VAT, you usually charge VAT on sales and reclaim the VAT you paid on business purchases, paying the difference to the tax authority. Thresholds and rules depend on your country, so check with your tax office or an accountant.

This guide explains the arithmetic only and isn't tax advice.