Calculate value added tax using this tool
About Value Added Tax
VAT (Value Added Tax) is a tax that is charged to businesses at the time of purchase of goods and services sold in the United Kingdom and Isle of Man. It's a fee levied on commercial interactions.
In the United States, Canada, and some other countries, VITA (known as a GST) is a sales tax that is collected on most goods and services sold by VAT-registered firms in the UK and the Isle of Man. The current standard rate of VAT is 20%. There are two different rates of VAT: 5% and 20%.
The UK Value-Added Tax (VAT) was implemented in 1973 as a replacement for Purchase Tax and Selective Employment Tax, as a condition of EU membership.
The VAT rate reduction from 17.5 percent to 15% was prompted by the global financial system's recent upheaval in 2008, which was increased to 20 percent in January 2011.
The Chancellor announced that the temporary reduction would last for 13 months before returning to 17.5 percent in January 2010. In his 2008 Pre-Budget report, the Chancellor said, "This one-time cut is equivalent to the government giving back 12.5 billion pounds to customers in order to stimulate the economy."
How to calculate VAT
Excluding VAT from gross sum:
- To calculate VAT exemption, use the following formula: divide the gross amount by 1 + VAT percentage (e.g., if it's 15%, you should divide by 1.15), then subtract, multiply by -1, and round to the nearest integer (including eurocents). The last two operations are not required since you can see the VAT value before performing them.
Adding VAT to net amount:
- It's a no-brainer. Simply multiply the net amount by 1 + VAT percentage (1.15, for example) to obtain the gross amount. If you need the VAT value, divide by the VAT percentage.
Adding VAT Formula
To add VAT to a price, divide the amount by 100 and then multiply by (100 + VAT percentage). That's all there is to it; you're already including VAT value (Gross amount) into the calculation. Better utilize our VAT calculator so that you won't make a mistake.
VAT Addition Example
For example, if your company makes and sells sports equipment for £500, you must first divide the total by 100 percent. Then multiply this value by 120 per cent to obtain £600 as a result of the calculation.
Removing VAT Formula
To divide the amount by (100 + VAT percentage) and then multiply by 100 to remove VAT from a number is straightforward. You may now subtract off the VAT (Net sum). If this is too difficult for you, consider using our online VAT calculator.
VAT Subtraction Example
If you bought a laptop for £500 and the price is $800, divide the price by 120 percent to get your first number. To arrive at the second number, multiply the value by 100%. We end up with £416.67, which is the VAT-free price without any discounts.
History of VAT
VAT, which has only just over 60 years of history, is relatively young when compared to other forms of taxation. VAT, on the other hand, has grown from being a minor source of income for governments to one of the most significant.
The precise time and place of the VAT's origin are uncertain, but most of the theoretical study and debate on its inception began in the 1920s in the United States and Germany. Economists at this period proposed using a value-added tax (VAT) to collect huge government income while avoiding distorting resource allocation within a free market system.
What is the difference between VAT/GST and sales tax?
Every stage of production, including sales and support (also known as a multi-stage tax), is subject to VAT/GST (therefore a single entity). It refers to the calculation of VAT based on "added value." It means that each person in the production chain pays only for the "additional value" they generate.
This process continues until the product reaches its ultimate consumer, the customer. He/she does not add any "additional value" to the transaction, therefore he/she is responsible for paying any taxes levied on it.
In contrast, the retail sales tax is a one-stage tax that is assessed on the total value of sold items or services at the time of sale. As a result, it is only paid once as opposed to VAT, which must be calculated multiple times.