How to calculate VAT: add it, remove it, round it
The three VAT formulas, taking tax out of a gross price without the usual mistakes, rounding per line or on the subtotal, and showing VAT on an invoice.
The three formulas
VAT and GST work the same way arithmetically, whatever the country calls them. You either start from a price without tax (net) and add it, or start from a price that already includes it (gross) and take it out. With the rate written as a decimal, 20% as 0.20:
- Tax on a net price: VAT = net × rate, and gross = net × (1 + rate).
- Net price inside a gross one: net = gross ÷ (1 + rate).
- Tax inside a gross price: VAT = gross × rate ÷ (1 + rate), which is one sixth at 20%, one eleventh at 10% and 19/119 at 19%.
Worked example: adding VAT to a net price
A designer quotes 850 for a job and is registered for VAT at a 20% standard rate, the UK rate GOV.UK lists. The VAT is 850 × 0.20 = 170 and the customer pays 850 + 170 = 1,020. The same job at a 10% rate, as for Australian GST, carries 85 of tax and costs 935.
Keep the net figure as the one you negotiate. If a customer asks for a discount after the quotation, change the net price and let the tax follow, rather than cutting the total and leaving the tax as it was.
Taking VAT out of a price that includes it
Now the other direction: a customer agreed a price of 1,020 including 20% VAT. The net amount is 1,020 ÷ 1.20 = 850, and the VAT inside it is 1,020 × 20 ÷ 120 = 170. Two shortcuts give wrong answers and are worth recognising:
At 10% the fraction is one eleventh: 110 including tax holds 10 of tax. At 19%, the German standard rate, 119 including tax holds 19. The fraction always has the rate on top and 100 plus the rate underneath.
- Taking 20% of the gross price: 1,020 × 0.20 = 204, which is 34 too much.
- Taking 20% off the gross price: 1,020 × 0.80 = 816, which leaves the net 34 too low.
- Both mistakes come from applying the rate to a figure that already contains the tax.
Rounding: per line or on the subtotal
Tax is worked out in fractions of a cent and has to be rounded, and where you round changes the result. Take three lines of 0.99 at 20%. Rounded per line, each carries 0.198, so 0.20, and the tax is 0.60. Worked out once on the subtotal of 2.97, the tax is 0.594, so 0.59.
Tax authorities set their own rules on which method is acceptable, so check yours and use one method consistently. QuoteBill works the tax out once, on the subtotal rounded to the currency’s decimals, and rounds the result half up; its Excel export keeps the same formula, so the file and the PDF agree to the cent.
Showing VAT on an invoice
An invoice that charges VAT normally shows the net amount, the rate, the tax and the total, so the customer can check the arithmetic and, if registered, reclaim the tax. A business that is not registered charges none. Registration thresholds differ: GOV.UK gave £90,000 of taxable turnover over 12 months, and the ATO gave $75,000 of GST turnover, both on 5 October 2026.
A QuoteBill document carries one rate for all its lines, set in “Tax rate (%)”. Lines at different rates go on separate invoices, and a sale with no tax takes a rate of 0 with the reason in “Notes”.
Using the QuoteBill calculator
The VAT and GST calculator does both directions: type an amount, say whether it includes tax, and it shows net, tax and gross. A country page starts from that country’s standard rate in QuoteBill’s tax data, with its official source, and you can type any other rate. A second box takes a deduction such as a withholding rate and shows what the customer actually pays. It is a helper, not tax advice: whether a rate applies to your sale is for your tax office or adviser to confirm.
Check before you rely on a figure
A quick test for any tax figure on a quotation or invoice:
- You know whether the price you started from was net or gross.
- The rate is the one for this sale, not only the country’s standard rate.
- Net plus tax equals the total to the last cent, with no rounding gap.
- The same rounding method is used on the quotation and on the invoice.
- A tax-free sale shows 0 and its reason, not an empty tax line.
Questions people ask
Why can’t I just take 20% off a VAT-inclusive price? Because the 20% was charged on the net price, not on the total. Taking 20% off 1,020 gives 816, but the net was 850. Divide by 1.20 instead.
Is the VAT fraction the same in every country? The method is; the fraction follows the rate. It is one sixth at 20%, one eleventh at 10% and 19/119 at 19%.
Should prices on my website include VAT? That depends on who you sell to and the rules where you sell. Consumers usually expect tax-inclusive prices; business customers often compare net prices. Say clearly which one you show.
Does QuoteBill know the right rate for my product? It starts from each country’s published standard rate, with a source, and lets you change it. Reduced rates and exemptions depend on the product and the customer, so you set those yourself.
Sample contracts and tools
Sources
250 Free Invoice, Quote & Receipt Templates
Free invoice generator
Download the invoice as Excel or Word with working formulas (free for QuoteBill members), or edit it online with your logo and tax settings and save a PDF.
Free quotation generator
Download the quotation as Excel or Word with the formulas working (free for QuoteBill members), or edit it online and turn an accepted quote into an invoice.
Price list template
Price list template for freelancers and small businesses: services or products with their unit and price, sent before a quote. A price list is not a firm offer.