The formulas
Net → gross: gross = net × (1 + rate)
- at 20%: net × 1.20
- at 19%: net × 1.19
Gross → net: net = gross ÷ (1 + rate)
- at 20%: gross ÷ 1.20
- at 19%: gross ÷ 1.19
Only the VAT inside a gross price: VAT = gross × rate ÷ (1 + rate)
- at 20%: gross × 20 ÷ 120, one sixth or 16.67% of the gross price
- at 19%: gross × 19 ÷ 119, 15.97% of the gross price
The most common mistake
Many people take the gross price and subtract the rate. That gives too little, because the tax was added to the net price, not to the gross price.
| Gross price | Wrong (− 20%) | Right (÷ 1.20) |
|---|---|---|
| 120.00 | 96.00 | 100.00 |
| 49.90 | 39.92 | 41.58 |
| 1,000.00 | 800.00 | 833.33 |
On a 49.90 product, that is 1.66 off on every order, and it compounds in every pricing decision built on it.
Why it matters for an online store
Your selling price is a gross price, but your revenue is the net amount. The VAT belongs to the tax office; you only collect it. A margin calculated on the gross price looks better than it is. What an order really leaves after VAT, product cost, shipping, payment fee and returns is what the profit margin calculator shows.
Rounding
The calculator rounds the tax to the cent and derives the other amount from it, so net + VAT = gross always adds up, as on an invoice. On invoices with many lines, your accounting software may differ by a cent depending on whether it rounds per line or on the total.