When given a VAT-exclusive price, how is the VAT amount calculated?

When given a VAT-exclusive price, how is the VAT amount calculated?

• A. Inclusive price / (1 + tax rate)
• B. Exclusive price x tax rate
• C. Exclusive price + tax rate
• D. Tax rate applied to total revenue

Answer: (B)

When you have a VAT-exclusive price, the VAT amount is the net price multiplied by the VAT rate. VAT is a percentage of the price before tax, so you apply the rate directly to that base to find how much tax is added. For example, if the exclusive price is 100 and the VAT rate is 20%, the VAT is 100 × 0.20 = 20, and the total price becomes 120. The other formulas either start from an inclusive price, try to add the rate as a fixed amount, or apply the rate to total revenue, which isn’t how VAT is calculated on a single item.

When you have a VAT-exclusive price, the VAT amount is the net price multiplied by the VAT rate. VAT is a percentage of the price before tax, so you apply the rate directly to that base to find how much tax is added. For example, if the exclusive price is 100 and the VAT rate is 20%, the VAT is 100 × 0.20 = 20, and the total price becomes 120. The other formulas either start from an inclusive price, try to add the rate as a fixed amount, or apply the rate to total revenue, which isn’t how VAT is calculated on a single item.