Calculating VAT: from excluding to including and back again
Written by Ilias Aarrass6 min read · Published on · Last reviewed on 
In short
You add VAT by multiplying by 1.21 (or 1.09) and extract it by dividing by 1.21; taking 21 per cent off an amount including VAT gives too low a figure.
- The VAT part of an amount including 21 per cent is calculated with 21/121, that is 0.1736.
- At the low rate it is times 1.09 to add and 9/109 to extract.
- On the invoice you use two decimals and show the VAT per rate; in the return you enter whole euros.
- To consumers you quote prices including VAT, to businesses excluding.
A client wants to pay exactly 500 euros. A supplier sends a receipt of 121 euros and you want to know how much VAT it contains. And your own hourly rate: is that with or without VAT? Calculating VAT is simple once you grasp one thing: VAT is always calculated on the amount excluding VAT, never on the amount including it. This article gives you the four calculations you need, the rounding rules and the pitfalls that most often go wrong in practice.
The four calculations
Everything starts with the amount excluding VAT: that is your price, and VAT comes on top. To add VAT you multiply. To extract VAT from an amount you divide. That last step is exactly where things go wrong, because taking 21 per cent off is not the same as dividing by 1.21.
These factors cover every situation. Use the middle column to go from your price to the amount on the invoice; use the right column when you have an amount including VAT and want to know how much VAT it contains.
| Rate | From excl to incl | VAT out of an incl amount | From incl to excl |
|---|---|---|---|
| 21% | × 1.21 | × 21 / 121 (= 0.1736) | ÷ 1.21 |
| 9% | × 1.09 | × 9 / 109 (= 0.0826) | ÷ 1.09 |
| 0% or exempt | no mark-up | no VAT | amount stays the same |
Three situations from practice
In practice you meet three variants: you calculate from your own rate, you work back from a budget the client mentions, or you extract the VAT from a receipt you paid yourself.
Worked example: the same VAT, three directions
- Hourly rate € 75 excluding, 8 hours worked
- € 600 excl, VAT € 126, invoice € 726
- Client wants to transfer € 500 at most
- € 500 ÷ 1.21 = € 413.22 excl, VAT € 86.78
- Receipt of € 121 for tools
- € 21 VAT to reclaim, € 100 in costs
Result: Only the amount excluding VAT is your turnover or your cost. The VAT part is money belonging to the tax authorities that sits briefly in your account
Rounding: per line, per invoice, per return
On your invoice you work with two decimals. You may calculate the VAT per invoice line and add it up, or calculate the VAT in one go over the total per rate. Pick one method and stick to it, otherwise you get differences of a few cents that you have to explain later. If you have lines with different rates, you total per rate and show the VAT amount per rate separately on the invoice.
In the VAT return itself you enter whole euros. Small rounding differences between your records and your return are normal; they must not accumulate. If the difference grows beyond a few euros, the error is in your bookkeeping, not in your rounding. Check that before filing with the five checks before your return.
- Always calculate VAT on the amount excluding, discounts included: first the discount, then the VAT.
- If payment involves a voucher or discount code, that lowers the basis and therefore the VAT too.
- Shipping and call-out charges follow the rate of the main supply, not automatically 21 per cent.
- When you pass costs on to a client, the VAT rate depends on what you supply, not on what the purchase receipt said. See passing on costs.
Communicating prices: including or excluding?
If you sell to consumers, the price you quote or display must be the price they actually pay: including VAT. When you work for businesses, excluding VAT is the norm, because they reclaim that VAT anyway. Always state which one you mean. A quote without 'excl VAT' almost always leads to a discussion with consumers, and you are the one left holding the bill.
If you fall under the small businesses scheme, you charge no VAT at all and your price is your price. Your invoice then shows no VAT amount, but does state that you apply the scheme. The reverse also holds: if you charged VAT when you should not have, you still owe that VAT until you correct the invoice with a credit note.
Choosing the right rate
Calculating is the easy part; determining the rate is the real work. The 21 per cent rate is the main rule, 9 per cent applies to a fixed list of goods and services, and some supplies are exempt altogether. Which VAT rate applies sets out each situation, and the difference between zero per cent and an exemption is bigger than it looks: at zero per cent you can still reclaim the VAT on your costs, with an exemption you cannot.
Frequently asked questions
How do I extract VAT from an amount including VAT?
Divide the amount by 1.21 (or 1.09 at the low rate) to get the price excluding VAT. The difference is the VAT. If you prefer to calculate the VAT directly, multiply by 21/121, that is 0.1736.
Why is taking 21 per cent off wrong?
Because the VAT was calculated on the lower amount, not the higher one. Of 100 euros, 21 per cent is 21 euros, but of 121 euros, 21 per cent is 25.41 euros. You then subtract too much and end up at 95.59 euros instead of 100 euros.
May I round per invoice line or per invoice?
Both are allowed, as long as you are consistent. Work with two decimals on the invoice and show the VAT amount per rate separately. In your return you then enter whole euros.
My client wants a round amount including VAT. How do I invoice that?
Work backwards: divide the round amount by 1.21 and put that on your invoice as the price, with the VAT below it. At 500 euros including, that is 413.22 euros plus 86.78 euros in VAT. Never put a round amount down as the price and pretend the VAT is already in there without splitting it out.
I used the wrong rate for months. What now?
Correct the invoices with credit notes and new invoices, and correct the returns. If the difference stays under 1,000 euros you may usually put it right in your next return; above that you file a supplementary return.
Sources
- VAT rates: 21%, 9% and 0%Belastingdienst · belastingdienst.nl
- Invoicing requirements for VATBelastingdienst · belastingdienst.nl
Sources checked on
This article provides general information based on the rules known for 2026 and does not replace personal tax advice. For your specific situation, we're happy to take a look with you.
