VAT vs Sales Tax: What's the Difference?
Whether you are a freelancer invoicing a client, a shopper traveling abroad, or a business owner pricing products, understanding consumption taxes is essential. While the concept is simple—the government takes a percentage of the sale—the math often trips people up, especially when working backward.
VAT vs. Sales Tax: What's the Difference?
- Sales Tax (USA): A single-stage tax collected only at the final point of sale to the consumer. Rates vary wildly by state, county, and even city (ranging from 0% to over 10%).
- VAT (Value Added Tax): Used by over 160 countries (including the UK, EU, and Canada). It is collected at every stage of production where "value is added." The standard rate in the UK is 20%, while in the EU it averages around 21%.
The Math Behind the Calculator
Adding tax is easy multiplication. Removing tax requires division. You cannot simply subtract the percentage!
To Add Tax
Total = Net × (1 + Rate)
To Remove Tax
Net = Total / (1 + Rate)
Frequently Asked Questions
Why can't I just subtract 20% to remove 20% VAT? ▼
This is the #1 mistake people make. If an item costs
$120 (including 20% tax), the tax is not $24 ($120 ×
0.20). The tax is actually $20, because the original
price was $100.
Math: $120 / 1.20 = $100.
What are common VAT rates globally? ▼
- United Kingdom: 20% (Standard)
- European Union: 17% to 27% (varies by country)
- Australia (GST): 10%
- Japan: 10%
- Canada (HST/GST): 5% to 15%