VAT Explained for Small Businesses
Adding tax, stripping tax, and the arithmetic error that quietly costs freelancers money on every invoice.
2026-06-19 · 5 min read
Net, gross and the divide-by trap
To add 20% VAT, multiply the net price by 1.2. To remove it, divide the gross by 1.2. Subtracting 20% from a gross price is the most common error in small business bookkeeping, and it understates the net figure every time.
VAT is not sales tax
VAT is charged at every stage of the chain, with businesses reclaiming the tax they paid on inputs. US sales tax is levied once, at the final consumer sale.