How to Calculate VAT on an Invoice
Adding VAT is simple maths — the hard part is knowing whether to charge it, at what rate, and how to show it on the invoice.
Adding VAT: the formulas
VAT (value-added tax) is a consumption tax added to most goods and services. To add it to a net price:
VAT = Net × Rate
Gross = Net × (1 + Rate)
To extract VAT from a gross (VAT-inclusive) price:
Net = Gross ÷ (1 + Rate)
VAT = Gross − Net
Run any figure through the VAT calculator for an instant breakdown.
Worked examples
| Net | Rate | VAT | Gross |
|---|---|---|---|
| €250 | 20% | €50 | €300 |
| €250 | 10% | €25 | €275 |
| €120 (gross) | 20% | €20 | €120 |
Mixing up which numbers are net and which are gross is the most common VAT mistake.
When do you charge VAT?
This depends on your registration status and the client's location. Broadly:
- If you are VAT-registered, you must charge VAT on taxable domestic sales.
- B2B cross-border sales within a VAT area are often reverse-charged — you do not charge VAT, but you must show the client's VAT number and a note.
- Exports and some services may be zero-rated or exempt.
- Below a turnover threshold, small businesses may not need to register at all.
Rules and thresholds vary by country. Check your local guidance or a professional — this guide is not tax advice.
How VAT appears on an invoice
- Prices are shown net (excluding VAT) by default.
- VAT is listed per rate if you mix rates.
- The total shows the gross amount.
- Your VAT number appears on the invoice.
- For reverse charge, add a note like "VAT not charged — reverse charge applies."
Generate a compliant invoice with the free invoice generator.
VAT vs sales tax vs GST
- VAT — charged at every stage with credits for input VAT; common in the EU and UK.
- Sales tax — typically charged once, at the final sale; common in the US.
- GST — a single-stage variant used in Canada, Australia, India and others.
They function differently behind the scenes, but on an invoice the maths is the same: apply the rate to the net amount.
Avoid these mistakes
- Applying VAT to a client who should be reverse-charged.
- Showing gross totals only, hiding the tax.
- Using the wrong rate for the product or service.
- Forgetting to display your VAT number.
- Rounding inconsistently across line items.
Quick and correct
Calculate net, VAT and gross in one click with the VAT calculator, then invoice with the generator — both free and private.