What is the difference between Net and Gross price?

Net Price is the amount BEFORE tax is added. Gross Price is the total amount AFTER tax is added. Businesses usually talk in Net prices, while consumers pay Gross prices.

What is the standard VAT rate?

It varies by country. UK is 20%, Germany 19%, France 20%. Some goods (like food or books) may have reduced rates (5% or 0%). Always check your local regulations.

Can I claim back VAT?

Generally, VAT-registered businesses can reclaim the VAT they pay on business expenses. Consumers cannot reclaim VAT on domestic purchases, but tourists may be able to claim a refund on goods bought abroad.

VAT Calculator | Add or Remove VAT Instantly (2025)

💡 Mastering VAT: A Business Essential

Value Added Tax (VAT) is a consumption tax placed on a product whenever value is added at each stage of the supply chain. For businesses, calculating it correctly is crucial for compliance and cash flow. For consumers, it's simply a tax on the final purchase price.

🎯 Expert Tip: "The Reverse VAT Trap"

Common Mistake: Trying to remove 20% VAT by subtracting 20%.
If a product costs $120 (incl. 20% VAT), the VAT is NOT $24 (20% of 120).
Correct Math: $120 ÷ 1.20 = $100. The VAT is $20.
Subtracting 20% from $120 gives $96, which is WRONG. Always divide by (1 + rate).

— David Chen, CFA | "I've seen small business owners overpay taxes by thousands because they simply subtracted the VAT percentage from their gross sales."

⚠️ Common VAT Mistakes

Wrong Rate Application: Not all goods are standard rate. Food, children's clothes, and books often have reduced (5%) or zero (0%) rates.
Invoice Errors: Issuing an invoice without separating the Net and VAT amounts can make it invalid for your client's tax reclaim.
Cash Basis vs. Accrual: Paying VAT to the government before you've actually been paid by your client (if on accrual basis) can hurt cash flow.
Rounding Errors: Always calculate VAT on the total invoice amount or line-by-line consistently to avoid rounding discrepancies.

📊 Real-World Example: The "Reverse Charge"

Scenario: You buy a laptop for your business for $1,200 (Gross). The VAT rate is 20%. You want to know how much you can reclaim.

Gross Price: $1,200
Wrong Way: $1,200 × 0.20 = $240 (Incorrect!)
Right Way: $1,200 ÷ 1.20 = $1,000 (Net Price)
VAT to Reclaim: $1,200 - $1,000 = $200

🏆 Using the correct formula ensures you don't over-claim on your tax return and face penalties.

DC

Reviewed by David Chen, CFA

Chartered Financial Analyst | Last Updated: November 2025

❓ Frequently Asked Questions

How do I calculate VAT backwards?

To find the Net price from a Gross price, divide by (1 + VAT Rate). For 20% VAT, divide by 1.2. For 15%, divide by 1.15.

Who pays VAT?

The final consumer pays the VAT. Businesses collect it on behalf of the government and pass it along, but they can usually reclaim VAT they paid on business expenses.

What is a VAT invoice?

A document that clearly shows the Net price, the VAT rate, the VAT amount, and the Gross price. It must also include the seller's VAT registration number.

Are there VAT-exempt items?

Yes. Financial services, insurance, and some medical services are often exempt from VAT. This means you don't charge VAT, but you also can't reclaim VAT on related expenses.

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