What is VAT?
VAT (Value Added Tax) is a consumption tax added to the sale of goods and services. It's charged at each stage of the supply chain, with businesses collecting it on behalf of the government and remitting it periodically. Unlike US-style sales tax (added at the final point of sale), VAT is built into the price chain throughout production.
If you're VAT-registered:
- You charge VAT on your sales (output VAT)
- You reclaim VAT on your business purchases (input VAT)
- You pay the difference to the tax authority
How to add VAT to a price (Net → Gross)
To find the gross (VAT-inclusive) price from a net (VAT-exclusive) price:
Formula: Gross = Net × (1 + VAT rate%)
Example: Net £100 with 20% VAT = £100 × 1.20 = £120 gross
How to remove VAT from a price (Gross → Net)
To find the net price from a VAT-inclusive (gross) price:
Formula: Net = Gross ÷ (1 + VAT rate%)
Example: Gross £120 with 20% VAT = £120 ÷ 1.20 = £100 net
The VAT amount is the difference: £120 − £100 = £20.
VAT rates by country (2026)
| Country | Standard rate | Reduced rates |
|---|---|---|
| United Kingdom | 20% | 5%, 0% |
| Morocco | 20% | 14%, 10%, 7% |
| Germany | 19% | 7% |
| France | 20% | 10%, 5.5%, 2.1% |
| Spain | 21% | 10%, 4% |
| Italy | 22% | 10%, 5%, 4% |
| Netherlands | 21% | 9% |
| Belgium | 21% | 12%, 6% |
| Sweden | 25% | 12%, 6% |
| Denmark | 25% | — |
| Norway | 25% | 15%, 12% |
| Ireland | 23% | 13.5%, 9%, 4.8% |
Do I need to register for VAT?
UK: Mandatory if your taxable turnover exceeds £90,000 in any 12-month period. Voluntary below that.
EU: Each country has its own threshold (some as low as €0 for non-residents).
Morocco: Most businesses must register if turnover exceeds 500,000 MAD/year for goods or 200,000 MAD/year for services.
USA: No VAT — but state-level sales tax may apply.
VAT reverse charge — what is it?
For B2B sales between EU countries (and certain UK construction services), the reverse charge rule applies: the seller doesn't add VAT, the buyer accounts for it on their VAT return. Use this for cross-border services within the EU when both parties are VAT-registered.
On the invoice, you'd note: "VAT reverse charge — customer to account for VAT".
Need to add VAT to invoices?
Our free invoice generator handles per-line VAT rates automatically.