Adding versus extracting
These are not symmetrical operations, and treating them as such is where money goes missing:
- Adding VAT to a net amount: multiply by the rate. Net 1,000 at 20% gives 200 of VAT and a gross of 1,200.
- Extracting VAT from a gross amount: divide by one plus the rate. Gross 1,200 at 20% gives a net of 1,000 — because 1,200 ÷ 1.20 = 1,000.
Subtracting 20% of the gross instead gives 960, understating the net by 40 on a single line. Repeat that across an invoice run and the reconciliation stops matching.
Why the error is so persistent
Both operations use the same rate, and at small rates the two answers look close enough to pass a glance. At 5% the naive subtraction is off by a quarter of a percent; at 20% it is off by 4%; at 23% by more than 5%. Nothing about the wrong answer looks wrong until someone reconciles the ledger.
What this calculator does not do
It applies one rate to one amount. It does not know your registration status, your customer's country, or whether the supply is zero-rated, exempt or subject to reverse charge. Those decide which rate applies; this decides what the numbers are once you know.
Questions
Why can't I just subtract 20% from the gross price?+
Because the VAT was calculated on the net amount, not the gross one. Subtracting 20% of 1,200 gives 960, but the correct net is 1,000 — 1,200 ÷ 1.20. The gap grows with the rate and with the amount, and it is the most common arithmetic error on an invoice.
Which rate should I use?+
Whichever applies where you are registered and to what you are selling — rates differ by country and by goods category, and reduced rates are common for food, books and medicine. This tool does not know your jurisdiction; it applies the rate you type.
Does this handle reverse charge or exempt supplies?+
No. It does the arithmetic for a single rate. Reverse charge, zero-rating and exemption are legal classifications, not different sums, and they change what you put on the invoice rather than what the calculator computes.
Is this tax advice?+
No. It is a calculator. Rates, registration thresholds and place-of-supply rules are jurisdictional and change; check them with your accountant or the tax authority rather than with a web page.