How to calculate VAT on an invoice

This is a general explanation of VAT calculation, not tax advice. VAT rates and rules vary by country and change over time, confirm current rates with your tax authority or accountant.

The calculation

VAT is calculated on the subtotal (the value of goods or services before tax), not on top of a total that already includes it. The formula is: VAT amount = subtotal × VAT rate. Total = subtotal + VAT amount.

Worked example

Say you're invoicing for $1,000 of consulting work at a 20% VAT rate. The VAT amount is $1,000 × 0.20 = $200. The total charged to the client is $1,000 + $200 = $1,200. The invoice should show all three numbers, subtotal, VAT amount, and total, not just the final figure.

Multiple VAT rates on one invoice

If an invoice includes items taxed at different rates (standard rate and a reduced rate, for example), calculate VAT separately for each group of items rather than blending them into one average rate. Show each rate and its corresponding VAT amount as its own line, then sum for the total VAT.

Common mistake: rounding too early

If an invoice has several line items, calculate VAT on the summed subtotal, not on each line item individually and then add the rounded results together. Rounding at each line can produce a total that's off by a cent or two from rounding the whole subtotal once, which looks like a math error even though the logic was reasonable.