When given a VAT-inclusive price, which formula gives the VAT amount?

When given a VAT-inclusive price, which formula gives the VAT amount?

• A. Inclusive price / (100 + tax rate) x tax rate
• B. Inclusive price x tax rate
• C. Inclusive price - tax rate
• D. Inclusive price / tax rate

Answer: (B)

When you have a price that already includes VAT, the VAT portion is the part of the total that represents tax. If the VAT rate is r as a decimal, the VAT amount is Inclusive × r / (1 + r). If the rate is given as a percentage, this becomes Inclusive × rate / (100 + rate). This works because the inclusive price equals the net price times (1 + r), so solving for the VAT part gives the ratio r/(1 + r). Example: with an inclusive price of 120 and VAT rate of 20%, VAT = 120 × 20 / (100 + 20) = 120 × 20 / 120 = 20. The total already includes this 20 as tax, so simply multiplying by the rate would be incorrect.

When you have a price that already includes VAT, the VAT portion is the part of the total that represents tax. If the VAT rate is r as a decimal, the VAT amount is Inclusive × r / (1 + r). If the rate is given as a percentage, this becomes Inclusive × rate / (100 + rate). This works because the inclusive price equals the net price times (1 + r), so solving for the VAT part gives the ratio r/(1 + r).

Example: with an inclusive price of 120 and VAT rate of 20%, VAT = 120 × 20 / (100 + 20) = 120 × 20 / 120 = 20. The total already includes this 20 as tax, so simply multiplying by the rate would be incorrect.