What Is the VAT Calculation Formula?

The general formula for calculating the Value Added Tax is the base cost of an item multiplied by the appropriate VAT rate for the item, as detailed by HM Revenue & Customs. To calculate the VAT of an item when the VAT is already included in the price, divide the total price of the item by 100 percent plus the applicable rate of the VAT.

For example, if an item costs $100 plus a VAT rate of 20 percent, the VAT calculation is $100 x 0.20 = $20, as shown by HM Revenue & Customs. The total cost of the item, including both the base price and the VAT, is found by adding the two together. For an item that costs $100 with a 20 percent VAT, the final price is calculated as $100 + $20 = $120.

To find the VAT from an item that has a total cost of $105, including a VAT taxed at a rate of 5 percent, the proper calculation is $105/1.05 = $100 to find the value of the item. From there, the VAT can be found by subtraction, as in the formula $105 – $100 = $5. When the VAT is included in the price, the price is considered VAT-inclusive. When VAT is not included, the price is VAT-exclusive, according to HM Revenue & Customs.