VAT stands for Value Added Tax, and it’s a tax governments add to the cost of goods and services. Tax experts call VAT a ‘consumption tax’, which means that it's added to the cost of something charged to a customer.
Here’s an example: Imagine we’ve gone to a country where VAT is 25%.
If a shop wants to sell us something for $100, the actual cost we pay would be $125. That’s because the shop has to add 25% to their original price, and then give that 25% to the government.
Not all governments charge VAT. There is no VAT in the USA, for example. However, the vast majority of countries do raise money through VAT.
Sadly, not all VAT calculations are as handy as 25% of $100; and VAT rates are different all over the world - but that’s where our handy VAT calculator comes in.
Here are just a few of the things our VAT calculator is really helpful for:
Some websites will list prices with VAT, and some without. We can help you cut through the confusion, and find the best price for your purchase.
Going abroad? VAT is different all over the world, and we can take the stress out of calculating prices.
If you’re running a company, we can take the effort out of working out how much to charge your customers.
If you’re a business, working out how much VAT you can claim back couldn’t be simpler.
If you’re preparing your accounts, you need to be able to rely on a quick, and highly-accurate tool to calculate how much you do, and don’t owe in tax.
If a business is VAT registered, it means they are set up to collect VAT on the government's behalf.
VAT registered businesses must apply VAT to the goods and services they sell, then pass the money they’ve collected on to the relevant tax authority.
Normally, businesses which are VAT registered may reclaim the VAT on their own purchases.
This is why some retailers might offer you the choice between seeing prices with or without VAT. If a company can claim the VAT back, there’s no real need for them to see the price with VAT added on.
Most countries also set a threshold for VAT registration: If your company’s revenue goes above the threshold, you must register for VAT; but if it doesn’t, you’re allowed to choose.
In order to comply with tax law, invoices typically display the amount the product or service actually cost, and then how much was added on in VAT. These two numbers are then added together, leaving you with a final amount.
Different countries charge different amounts of VAT. In fact, confusingly, countries will often charge different amounts of VAT on different things. Hungary, for example, has the world’s highest VAT rate of 27%, but this drops to 5% for food, and you won’t pay any VAT at all on products like books, or children’s clothing.
VAT is worked out as a percentage of the original price of a product or service. Normally, sellers will include this amount in the total price, and then pay the VAT directly to the government.
As a consumer, you will normally shoulder the burden of VAT when buying a taxable product or service. However, the person you are buying it from is technically responsible for ensuring that the VAT you’ve paid is then paid to the government.
If you see something that is ‘inclusive of VAT’, that means that the price you’re paying has already had the appropriate amount of VAT added to the total. You can find out what the price would be without VAT by entering it into our VAT calculator, above.
It’s easy to get VAT and income tax confused, because both are charged by the government on money people receive. There are actually quite a few differences between the two, but the main ones are: VAT is charged when a product or service is being purchased from a business. This could be from a shop, or from a contractor, but it always involves a transaction of some description. Income tax, on the other hand, is only charged on money you have earned. This is normally your salary, but can include other things like interest earned.
People are often caught out by products where the VAT has not yet been added to the total, and this sort of pricing is known as ‘excluding VAT’. Unfortunately, excluding VAT doesn’t mean you can get away without paying tax. It just means that the tax is going to be added on later - when it’s time to pay. If you pop the price into our VAT calculator, we can help you compare the difference between prices which do and don’t have VAT included.
To compute Value Added Tax (VAT), you can use the following equation:
Net Amount + (Net Amount x VAT Percentage) = Gross AmountUnited Kingdom - VAT, Germany - MwSt, France - TVA, Spain - IVA, Italy - IVA, Poland - VAT, Ireland - VAT, Russia - НДС, Ukraine - ПДВ, Sweden - MOMS, Netherlands - BTW, Belgium - TVA, Albania - TVSH, Andorra - IVA, Armenia - ԱԱՀ, Austria - MwSt, Belarus - ПДВ, Bosnia and Herzegovina - ПДВ, Bulgaria - ДДС, Croatia - PDV, Cyprus - ΦΠΑ, Czech republic - DPH, Denmark - Moms, Estonia - Käibemaksu, Finland - ALV, Georgia - დღგ, Greece - ΦΠΑ, Hungary - Áfa, Iceland - VSK, Latvia - PVN, Lichtenstein - MwSt, Lithuania - PVM, Luxembourg - MwSt, Macedonia - ДДВ, Malta - VAT, Moncaco - VAT, Montenegro - PDV, Norway - MVA, Portugal - IVA, Serbia - ПДВ, Slovakia - DPH, Slovenia - DDV, Switzerland - MWSt, Romania - TVA
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