How to Add and Remove VAT or GST (With Examples)

If you sell anything, or buy anything for a business, you need to move between prices with tax and prices without. It looks like simple percentages, but there's one mistake almost everyone makes at first: removing tax from a total by taking the tax rate off it. That gives the wrong answer every time. This guide shows the right way to add and remove VAT or GST, with examples you can check yourself.

Note: this is general information, not tax advice. Rates, rules and which goods are taxed differ by country, so check with your tax authority or an accountant for your own situation.

VAT and GST in one minute

VAT (value-added tax) and GST (goods and services tax) are both consumption taxes: a percentage added to the price of goods and services. Businesses usually collect the tax from customers and pass it on to the government, after deducting the tax they paid on their own purchases. For the buyer, what matters is that the final price often includes the tax, and a business needs to know the amounts separately.

Two terms come up constantly:

• Exclusive (or "net"): the price before tax.
• Inclusive (or "gross"): the price after tax, which is what the customer pays.

Adding tax to a price (exclusive to inclusive)

Formula: net × (1 + rate)

A service costs 100 and VAT is 20%. 100 × 1.20 = 120, of which 20 is tax.

Another example: a 2,500 item with 18% GST. The tax is 2,500 × 0.18 = 450, and the total is 2,950.

Removing tax from a price (inclusive to exclusive)

Formula: gross ÷ (1 + rate)

A total of 120 includes 20% VAT. Divide: 120 ÷ 1.20 = 100. The tax in it is 120 − 100 = 20.

Check the GST example in reverse: 2,950 ÷ 1.18 = 2,500, and the tax is 450.

The common mistake

The tempting shortcut is to take 20% off 120. That gives 24, and 120 − 24 = 96, not 100. It's wrong because the 20% was added to the original 100, not to 120. The tax is a percentage of the net price, so it has to be removed by dividing, not by subtracting a percentage of the total.

A useful sanity check: at 20% VAT, the tax is one sixth (16.7%) of the tax-inclusive price, not 20%. At 18% GST it's about 15.3% of the inclusive price.

A quick reference

Rate	Net to gross	Gross to net	Tax as share of gross
5%	× 1.05	÷ 1.05	4.8%
10%	× 1.10	÷ 1.10	9.1%
15%	× 1.15	÷ 1.15	13.0%
18%	× 1.18	÷ 1.18	15.3%
20%	× 1.20	÷ 1.20	16.7%

For 5%, 120 inclusive is 114.29 net with 5.71 tax.

When you need this

• Pricing products. Decide whether your displayed price should include tax. Consumers expect inclusive prices in many countries; business buyers often prefer exclusive ones.
• Writing invoices. A tax invoice normally shows the net amount, the tax rate, the tax amount and the total separately. Our guide to creating a professional invoice covers what to include.
• Checking a receipt or quote. Confirm that the tax was calculated properly before you pay or claim it.
• Bookkeeping. Accountants need net, tax and gross amounts for every sale and purchase.
• Comparing prices. A "price including tax" and a "price excluding tax" aren't comparable until you put them on the same basis.

Rounding

Tax is usually rounded to the nearest cent or smallest currency unit. Where you round matters on invoices with many lines: rounding each line and then adding gives a slightly different total from adding all the lines and rounding once. Follow the method your tax authority or accounting software expects, and be consistent.

Different rates on one invoice

Some countries apply several rates: a standard rate, a reduced rate for certain goods, and a zero rate. If an invoice mixes them, calculate each line at its own rate and show the totals per rate. Don't average rates, because the answer won't match the actual tax due.

Currency and tax

If you sell in another currency, calculate the tax in the currency of the invoice and then convert for your own records if needed, using the exchange rate rules your tax authority requires. The Currency Converter is handy for checking amounts.

Do it with a calculator

You can do all of this by hand, but a calculator removes the slips. The GST / VAT Calculator works in both directions: enter an amount and a rate, choose whether the amount is exclusive or inclusive, and it returns the base amount, the tax and the total. For the underlying percentage maths, see percentages made easy. And once tax is handled, make sure your pricing leaves you a profit, using profit margin vs markup and the Profit Margin Calculator.

The short version

To add tax, multiply by 1 plus the rate. To remove it, divide by 1 plus the rate. Never subtract the rate's percentage from a tax-inclusive total. Keep net, tax and gross separate on every invoice, round consistently, and check the rules for your own country.