How to calculate VAT or GST: add and remove tax

Whether it's called VAT, GST or sales tax, the arithmetic is the same. You need two formulas: one to add tax to a price, and one to find the tax already included in a total. The rate itself depends on your country and what you sell; DocNova never assumes a rate.

Adding tax to a price

Tax = price × rate ÷ 100, then total = price + tax.

Example: a price of 1,000 with 8.25% sales tax. Tax = 1,000 × 8.25 ÷ 100 = 82.50. Total = 1,082.50.

Removing tax from a total

Tax = total × rate ÷ (100 + rate), then price before tax = total − tax.

Example: a total of 120 that includes 20% VAT. Tax = 120 × 20 ÷ 120 = 20. Price before VAT = 100.

The most common mistake

To remove 20% VAT from 120, many people subtract 20% of 120 (24) and get 96. That's wrong, because the tax was calculated on the smaller pre-tax amount (100), not on the total. Always divide by (100 + rate).

Rounding

Tax is normally rounded to the smallest unit of the currency (for example, cents). You can round the tax on each invoice line and add the lines up, or add up the lines first and round the tax once per rate. Both methods are used, and they can differ by a cent or two; tax authorities often specify which method is acceptable. DocNova's invoice generator lets you choose either method and uses exact decimal maths to avoid floating-point errors.

Several tax rates on one invoice

If some items have a different rate (or are zero-rated), calculate tax separately for each rate and show a line for each on the invoice, for example "VAT 20% on 500.00 = 100.00" and "VAT 5% on 200.00 = 10.00".

Try it: use the free VAT and GST calculator to add or remove tax at any rate.