VAT Explained: Net Price, VAT Amount & Gross Price

Net price, VAT amount, and gross price explained with simple example

Introduction

When prices include tax, it’s easy to get confused between net price, VAT amount, and gross price.
This guide explains the difference in plain language, shows how VAT fits into pricing, and walks through simple calculations you can follow step by step. Because VAT rates vary by country, understanding these terms helps you read invoices correctly and calculate VAT accurately whether you’re comparing prices or issuing bills.

Table of Contents

What Is Net Price?

The net price is the price before VAT is added.
Businesses often quote net prices to other businesses, especially in B2B transactions.

Example:

  • Net price: 100
  • VAT not included yet

What Is the VAT Amount?

The VAT amount is the tax calculated on the net price using the applicable VAT rate.

Formula:

VAT amount = Net price × VAT rate

Example:

  • Net price: 100
  • VAT rate: 20%
  • VAT amount: 20

What Is Gross Price?

The gross price is the final price including VAT.
Consumers usually see gross prices in stores and online.

Formula:

Gross price = Net price + VAT amount

Example:

  • Net price: 100
  • VAT amount: 20
  • Gross price: 120

Net vs Gross Price: Key Differences

  • Net price: Before VAT
  • VAT amount: The tax added
  • Gross price: Total paid by the customer

Understanding this difference prevents pricing mistakes and helps you compare like-for-like prices.

How to Calculate VAT from Net to Gross

  1. Start with the net price
  2. Multiply by the VAT rate to find VAT
  3. Add VAT to the net price

For the full calculation flow, see our article How VAT Works

How to Find Net Price from a VAT-Inclusive (Gross) Price

When a price already includes VAT, you cannot subtract VAT directly.
You must divide by (1 + VAT rate).

Formula:

Net price = Gross price ÷ (1 + VAT rate)

Example:

  • Gross price: 120
  • VAT rate: 20%
  • Net price: 120 ÷ 1.20 = 100

Why Net and Gross Prices Matter

Knowing the difference helps when you:

  • Read invoices correctly
  • Compare supplier quotes
  • Set prices accurately
  • Avoid VAT calculation errors

It’s also essential when using VAT calculators or spreadsheets.

Does Net vs Gross Pricing Change by Country?

The concept stays the same, but:

  • VAT rates differ
  • Some items may be exempt or zero-rated
  • Display rules vary

For accurate results, always calculate using your country’s VAT rules.

External Reference

For official definitions of VAT-inclusive and VAT-exclusive pricing, see:
European Commission – VAT Basics

Frequently Asked Questions

What is the difference between net and gross price?

Net price excludes VAT; gross price includes VAT.

Do consumers usually see net or gross prices?

Consumers typically see gross prices that already include VAT.

Why can’t I subtract VAT from a gross price?

Because VAT is a percentage of the net price. You must divide by (1 + VAT rate).

Key Takeaways

  • Net price is before VAT
  • VAT amount is the tax added
  • Gross price is the final amount paid
  • Reverse VAT requires division, not subtraction
  • Country rules affect VAT rates, not the core concept
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