Methods of Calculating VAT

There are various ways to calculate value added tax.
There are various ways to calculate value added tax. (Image: Andrew Dernie/Photodisc/Getty Images)

Value-added tax, or VAT, is a surcharge assessed, usually by the government, on sales of consumer products. It not used in the United States, but is found in many countries of the European Union and elsewhere. If you travel abroad, you may find yourself trying to figure the actual price of an item if the VAT is not included. The VAT is refundable on some purchases if you are not a resident of the nation. This means you can calculate the VAT on your items and ask for a refund. These transactions generally start at customs when you leave the country, so save your receipts and pick up a form when you depart.

Calculate VAT Simply

The simplest way to calculate the VAT on a purchase is to multiply the price of the item by the rate of the VAT and add the total to the price of the item. For instance, if you are in England and wish to buy a sweater for 150 pounds, and the VAT is 18 percent, the VAT is 27 pounds (150 times 0.18), so the total price would be 177 pounds.

Calculate VAT by Combining Price and VAT

You can also calculate the total price of an item in one step by multiplying it by 1 plus the percentage of the VAT. Taking the example above, if we multiply the price of the items (150 pounds) by 1 plus the VAT percentage (1 + 0.18, or 1.18), we get the same result, a final price of 177 pounds.

Calculate VAT from Total Price

You can also work backward from the final price to figure the VAT. This can be helpful if the VAT is not broken out on your receipt, or if it was included in the price and you want it refunded to you. You must know the VAT rate for the country to do this calculation. In this case, you take the final cost of the item and divide it by 1 plus the VAT rate, then subtract that from the total cost to get the VAT paid. Using the same example, let's say you paid 177 pounds for a sweater. Divide 177 by 1.18, yielding 150, and subtract that from the full price (177) to get 27 pounds – the amount of VAT you paid.

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