Updated on May 28, 2022
How To Calculate VAT
If you need to include VAT in a pricing or subtract it from a price, this tutorial will show you how to do it in an understandable way.
Since VAT (Value Added Tax) is expressed as a percentage, any computation that involves VAT requires dealing with percentages. This is the first thing to understand.
The term “percent” can be broken down into its two parts, “percentage” and “percentage”. If you think of “cent” as short for “century” (as in one hundred years or when a cricket batsman scores one hundred runs), then the word “percent” will make much more sense and be much easier to use.
Percent = per hundred.
The current VAT rate in South Africa is 15%, which, as we just learned, translates to “15 per 100.” To put it simply, you will pay R15 in VAT for every 100 rand you spend.
The term “per” in mathematics refers to the mathematical concept of dividing.
That example, we can alternatively write 15% (15/100), which is 15 percent (which is 15 per 100), as 15% divided by 100 percent.
Once we understand what 15% implies, we can proceed to use this VAT rate to compute the amount of VAT that must be added or subtracted from a price in order to get the VAT inclusive or VAT exempt price.
Calculating the VAT Amount
If you’re trying to figure out how much VAT you’ll have to pay, remember that VAT is levied as a “amount of” a product’s price.
The mathematical term for “multiply” is the word of.
As a result, we must multiply the price by the percentage of VAT in order to compute any purchase price’s VAT.
We multiply the buying price of x by 15%.
But remember that 15% is 15% of 100 or 15% of 100.
For example, 15/100 Equals (x)(15/100), which is the VAT amount on x.
Using a simple example, if something costs R50, the VAT payable is calculated by multiplying R50 by a 15% factor. As a result, we can determine the amount of VAT by multiplying 15% by 100:
To put it another way, if you buy something for R50, you’ll have to pay a tax of R7.
Calculating A Price Including VAT
There are a few ways to figure out the overall cost of a product if it doesn’t include taxes, such as calculating VAT and then adding it to the price.
Original Amount + VAT Amount = Total (Including VAT)
Here, we’ll explain how to calculate your tax bill, based on what you learned about VAT in the preceding section.
It costs R50 without VAT, so R7 is the amount of tax that must be paid.
Including VAT, the total cost would be:
|Total (Including VAT)||= Original Amount + VAT Amount|
|= R50 + 7|
Top tip– To jump straight from an amount excluding VAT to an amount including VAT of 15%, multiply the original amount by 1.15
Total (Including VAT) = (Original Amount) x (1.15)
(Why 1.15? – Well VAT is 15% (15/100 = 0.15) and so to get to the total including VAT you need to add 0.15 to the original price (1.00) which gives 1.15)
Calculate A Price Excluding VAT
The VAT amount that was added to arrive at the price that includes VAT is what you need to calculate if you want to know what the price would be excluding VAT.
This is a trickier calculation to perform than the one that include VAT.
To begin, we know that the price without VAT has been increased by 15%. Remember that 15 percent is (15/100 = 0.15) and we saw in the last section that shifting from an amount that excludes VAT to an amount that includes VAT we multiplied the amount that excludes VAT by 1.15.
That indicates that if we wish to travel the other way (from a VAT-inclusive figure to a VAT-exclusive value), we must divide by 1.15.
Including VAT, the total is equal to 1.15.
What if we have R57 and wanted to see what the value without VAT would be?
|Total (Excluding VAT)||= Total (Including VAT) / 1.15|
|= R57 / 1.15|
The amount of VAT which was included in the price is then simply the Total including VAT less the Total excluding VAT.
VAT Amount = Total (Including VAT) – Total (excluding VAT)
From the example above
|Total (Excluding VAT)||= Total (Including VAT) – Total (Excluding VAT)|
|= R57 – R50|
Of course, if you don’t want to do VAT calculations manually, just use our Online VAT Calculator which will quickly do all the number crunching for you.