What VAT is
Value added tax (VAT) is a tax on most things businesses sell. The shop or supplier adds it to the price and passes it on to the government. Many countries call the same kind of tax GST (goods and services tax) or sales tax. In the UK and Europe, prices in shops already include VAT, while prices between businesses are often quoted before VAT.
How to add VAT
VAT = net price × rate ÷ 100
price with VAT = net price × (1 + rate ÷ 100)
A 250 item at the UK rate of 20%: 250 × 0.20 = 50 VAT, so the total is 300.
How to remove VAT
This is where people most often go wrong. To find the price before VAT, you divide by 1 plus the rate. Taking 20% off the total gives the wrong answer.
net price = total ÷ (1 + rate ÷ 100)
VAT inside the total = total − net price
You paid 120 including 20% VAT. 120 ÷ 1.20 = 100 before VAT, and the VAT was 20.
Taking 20% off 120 would give 96, which is 4 too low.
A quick UK shortcut: the VAT in a total is one sixth of it (120 ÷ 6 = 20).
Standard VAT rates in Europe
| Rate | Countries |
|---|---|
| 27% | Hungary (highest in the EU) |
| 25% – 25.5% | Croatia, Denmark, Finland, Sweden, Norway |
| 23% – 24% | Estonia, Greece, Ireland, Poland, Portugal, Slovakia |
| 20% – 22% | UK, Austria, Belgium, Bulgaria, Czechia, France, Italy, Latvia, Lithuania, Netherlands, Romania, Slovenia, Spain |
| 17% – 19% | Cyprus, Germany, Luxembourg, Malta |
| 8.1% | Switzerland |
EU law sets a minimum standard rate of 15%. Countries change their rates from time to time. Finland, Estonia, Slovakia and Romania all raised theirs in 2024 and 2025. Check your tax authority's website before filing a return.
VAT, GST and US sales tax
The United States has no national VAT. Instead, states, counties and cities add their own sales tax at the till, so prices on shelves don't include it. For that, use our sales tax calculator. Canada has a 5% federal GST, and many provinces add their own tax on top. That can be a separate PST or a combined HST.
Please note: rates were taken from official government sources but can change. Reduced and zero rates apply to many goods. If you're registered for VAT, your tax authority's rules come first.
Frequently asked questions
Why can't I just take 20% off to remove VAT?
Because the 20% was added to the smaller price before VAT, not to the total. Dividing by 1.2 undoes it correctly. Subtracting 20% of the total removes too much.
What's the UK VAT registration threshold?
UK businesses must register for VAT once their taxable turnover goes over £90,000 in a 12-month period. They can also register voluntarily below that.
Do I pay VAT on things I buy from abroad?
Usually, yes. Online shops selling into the UK or EU often charge the buyer's local VAT at checkout. Otherwise it may be collected, along with a handling fee, when the parcel arrives.