Adding tax to a price is easy. Taking it back out is where people slip, because you cannot simply subtract the tax rate from a price that already includes it. This calculator does both directions, for VAT, GST or sales tax, at any rate.
How it works
To add tax, multiply the net price by the tax rate to get the tax, then add it on. At 20%, a price of 100 gets 20 of tax and becomes 120.
To remove tax, divide the gross price by (1 + the tax rate). At 20%, that means dividing by 1.2. A price of 100 including tax is 83.33 before tax, and the tax inside it is 16.67.
Taking 20% off 100 would give 80, which is wrong. The tax was 20% of the net price, not of the gross price, so removing it needs division rather than subtraction.
A worked example
At a 20% rate, adding tax to 100 gives 120. Removing tax from a price of 100 that already includes it gives 83.33 before tax, with 16.67 of tax included.
Questions people ask
Why is removing 20% VAT not the same as taking 20% off?
Because the 20% was calculated on the smaller, pre-tax price. Taking 20% off the bigger, tax-inclusive price removes too much. Dividing by 1.2 reverses the original multiplication exactly.
Which currency does this use?
Any. The calculator works on plain amounts, so the results are in whatever currency you entered.
What rate should I use?
Use the rate that applies to what you are selling and where. Rates differ by country, and within a country there can be reduced rates for some goods, or different sales tax rates by state and city. Check your tax authority's current rates for anything you invoice.
Guides
- Profit Margin vs Markup: The Difference That Changes Your PricesMargin divides profit by the price. Markup divides it by the cost. Mix them up and a 50% target quietly becomes 33%.
- How to Remove VAT or Sales Tax From a Price (the Right Way)Taking 20% off a price that includes 20% VAT removes too much. Here is why, and the one-line formula that gets it right every time.