Turning a net price into a gross price, finding the VAT hidden inside an amount, applying the right rate to a quote: these calculations come up every week in a small or mid-sized business. Get one wrong and it's your margin or your tax return that pays the price. Here are the exact formulas, the French rates in force and a clear method, backed by concrete examples, so you never slip up again.
VAT (value-added tax) is an indirect tax that you collect on behalf of the government on nearly all of your sales. You charge the customer a gross price, but you keep only the net amount: the VAT portion has to be paid over. Calculating it correctly protects your margin, produces credible quotes and avoids nasty surprises at filing time. There's nothing complicated once the logic is clear: it all comes down to a multiplication and a division.
Net, gross, VAT: three concepts to keep separate
Before any formula, you need to nail down the vocabulary. These three amounts are linked by one very simple addition, and the entire logic of the calculation flows from it. Many mistakes come from confusing the price you take in with the price that's actually yours to keep.
- Net (excluding tax): the real price of your product or service, the one that feeds your revenue and your margin.
- VAT: the tax added to the net price, calculated with a rate (20%, 10%, 5.5% or 2.1%).
- Gross (tax included): what the customer actually pays, i.e. net + VAT.
The core relationship fits on one line: gross = net + VAT, and VAT = net × rate. Everything else is just a rewrite of that equation depending on the figure you're after. If you remember one thing: the gross price is always larger than the net price, and the gap between the two is the VAT you'll have to pay over.
Why this isn't your money
VAT simply passes through your business. You collect it from the customer, deduct the VAT you paid yourself on your purchases, and pay the difference to the government. This mechanism is exactly why you should always think in net terms to steer your profitability.
The French VAT rates currently in force
In mainland France, four rates coexist. Applying the right rate matters just as much as the calculation itself: a rate error skews your quote, your tax return and, if you're audited, can be held against you. The rate depends on the nature of the goods or service sold, not on your preference.
| Rate | Name | Where it applies |
|---|---|---|
| 20% | Standard rate | The majority of goods and services (services, everyday products) |
| 10% | Intermediate rate | Food service, renovation work, transport |
| 5.5% | Reduced rate | Food products, books, energy, equipment for people with disabilities |
| 2.1% | Special rate | Reimbursed medicines, press |
Special cases for overseas territories
The French overseas departments (Guadeloupe, Martinique, Réunion) apply specific rates (notably 8.5% as the standard rate), and Corsica has its own reduced rates. Always check the rate that applies to your activity and your territory before issuing a commercial document.
In practice, most service providers (consulting, general trades, agencies) fall under the standard 20% rate. But a single line of work can juggle several rates: a caterer bills its dishes at one rate and its service at another, and a building tradesperson applies 10% on renovating an older home but 20% on new construction. When in doubt, the tax authorities and your accountant remain the reference sources.
The essential formulas to know
For a rate of 20%, you use the coefficient 1.20 (that is, 1 + 20/100). For 10%, it's 1.10; for 5.5%, 1.055; for 2.1%, 1.021. Here are the four calculations that cover almost every situation.
Going from net to gross
You know your net price and want to display the customer price: gross = net × (1 + rate). Example with a service at €500 net and a 20% rate: 500 × 1.20 = €600 gross. Another example at 10% for renovation work at €2,000 net: 2,000 × 1.10 = €2,200 gross.
Going from gross to net
You have a gross price (for instance from a receipt or a list price) and want the net figure: net = gross / (1 + rate). On €600 gross at 20%: 600 / 1.20 = €500 net. This is the calculation people get wrong most often, because many subtract 20% from the gross price, which is mathematically incorrect.
The classic mistake to stop making
Taking 20% off a gross price does NOT give you the net price. On €600 gross, removing 20% gives €480, whereas the true net figure is €500. The difference comes from the fact that the rate applies to the net amount, not the gross one. Always divide by 1.20; never subtract the rate directly.
Isolating the VAT amount
From the net figure: VAT = net × rate (500 × 0.20 = €100). From the gross figure: VAT = gross − (gross / 1.20), or more quickly VAT = gross × rate / (1 + rate), i.e. 600 × 0.20 / 1.20 = €100. This last calculation is invaluable when all you have in front of you is a gross amount and you need to recover the VAT to declare. If working with rates brings back bad memories, our article on calculating a percentage without mistakes covers the logic from the ground up.
| You want | You know | Formula (20% rate) |
|---|---|---|
| Gross | Net | net × 1.20 |
| Net | Gross | gross / 1.20 |
| VAT | Net | net × 0.20 |
| VAT | Gross | gross × 0.20 / 1.20 |
Calculate your VAT in one click
Enter a net or gross amount, pick the rate and instantly get all three values. Perfect for preparing a quote or checking an invoice with no risk of a division error.
Applying VAT to a quote: the step-by-step method
On a quote, the legally required presentation always starts from the net figure. Here's the approach for a clean, readable, error-free quote that you can follow on every new job.
- 1List each line (product or service) with its unit net price and quantity.
- 2Calculate the net total by adding up all the lines.
- 3Apply the rate matching each category: a single quote can mix 20% and 10%.
- 4Sum the VAT by rate to get the "Total VAT" line.
- 5Add net total + total VAT to display the gross total, the amount the customer will pay.
A full example of a mixed quote
Imagine a tradesperson billing €1,500 net for renovation (10% rate) and €300 net for supplying a new piece of equipment (20% rate). The VAT at 10% is €150 and the VAT at 20% is €60, for €210 of VAT in total. So the quote shows €1,800 net, €210 of VAT and €2,010 gross. Clearly presenting each rate avoids disputes and reassures the customer about your professionalism.
Always think in net terms
Set your prices and your margin on a net basis, never on the gross figure. VAT isn't your money: you're only collecting it for the government. A price conceived in gross terms muddies your profitability calculation and leads you to underestimate your real margin.
As the volume of quotes grows, redoing these calculations by hand becomes a source of errors and wasted time. This is exactly the kind of repetitive task you can make reliable: see our guide on automating the generation of your quotes and invoices, which automatically applies the right rate and works out the totals for you.
Common mistakes that cost you dearly
Beyond the net/gross confusion already mentioned, several traps come up regularly in small and mid-sized businesses. Knowing them is already half the battle.
- Rounding too early: round only the final result, not each intermediate step, or you risk a few cents of discrepancy that add up on a large invoice.
- Picking the wrong rate out of habit: applying 20% everywhere when part of the work falls under 10% or 5.5% distorts your return.
- Forgetting to set aside the VAT collected: it inflates your cash flow on paper, but it will have to be paid over. Put it aside as soon as you're paid.
- Confusing output VAT and input VAT: you only pay over the difference between the VAT charged to your customers and the VAT paid on your business purchases.
The right cash-flow habit
Open a dedicated sub-account or set-aside pot and move the VAT into it as soon as a customer pays you. On filing day, the money is there, ready to be paid over, and you never dip into a sum that doesn't belong to you.
The case of the VAT-exempt scheme
If you're on the VAT-exempt scheme (common for micro-entrepreneurs below the thresholds), you don't charge VAT. Your invoices carry the note "VAT not applicable, art. 293 B of the French Tax Code", and your net and gross prices are identical. In return, you can't reclaim the VAT on your purchases. As soon as you exceed the thresholds or voluntarily opt for the standard scheme, the formulas above become part of your daily routine again.
Exempt scheme or standard scheme: how to decide
The exempt scheme simplifies management and lets you offer competitive prices to consumers, since there's no VAT to add. The standard scheme becomes worthwhile when your customers are themselves businesses (which reclaim VAT) or when you make significant purchases whose VAT you'll want to deduct. Anticipate the switch before you cross the thresholds so you're not caught off guard.
The VAT you charge isn't yours: it passes through your cash flow before being paid over. Setting it aside is how you avoid a hole at filing time.
Once you've mastered the calculations, the next step is often to make the whole cycle reliable: issuing, sending, collecting and tracking. Our articles on automating your accounting and on automating customer payment reminders show how to cut the administrative load without spending your evenings on it.
Frequently asked questions
How do you calculate VAT from a net amount?
Multiply the net amount by the rate to get the VAT, then add it to the net figure for the gross. For example, €500 net at 20% gives €100 of VAT and €600 gross. The direct formula for the gross figure is net × 1.20 for a 20% rate.
How do you recover the net price from the gross?
Divide the gross amount by 1 + rate, i.e. 1.20 for a 20% rate. A price of €600 gross therefore corresponds to €500 net. Watch out: simply subtracting 20% from the gross gives an incorrect result.
How many VAT rates are there in France?
In mainland France there are four rates: 20% (standard), 10% (intermediate), 5.5% (reduced) and 2.1% (special). The overseas departments and Corsica apply reduced rates specific to their territory.
Why not subtract 20% from the gross to find the net?
Because the VAT rate applies to the net amount, not the gross. Since the gross is higher, taking 20% off it removes too large a sum. You have to divide by 1.20, which gives back exactly the net price.
Which VAT rate applies to a service?
Most services fall under the standard 20% rate. Some activities benefit from reduced rates, such as food service or renovation work at 10%. When in doubt, check with the tax authorities or your accountant.
Does a micro-entrepreneur have to charge VAT?
As long as they stay below the VAT-exemption thresholds, no: they invoice without VAT, adding the note "VAT not applicable, art. 293 B of the French Tax Code". Above the thresholds, they must charge VAT and apply the standard net/gross formulas.
In summary
Calculating VAT comes down to two moves: multiply by (1 + rate) to go from net to gross, and divide by (1 + rate) to do the reverse. Pick the right rate for your activity and your territory, always think in net terms to steer your margin, set aside the VAT you collect and check every quote before you send it.
- Net → gross: multiply by 1 + rate (× 1.20 at 20%).
- Gross → net: divide by 1 + rate (/ 1.20 at 20%); never subtract the rate.
- Rates: 20% standard, 10% intermediate, 5.5% reduced, 2.1% special.
- Quotes: start from the net figure, apply the rate per line, add up for the gross.
To move faster day to day, a dedicated calculator saves you from division errors and forgotten rates. And if these calculations come up every week, it's probably time to automate them completely. At TC Automation, we build simple business tools that save small and mid-sized companies time on these repetitive tasks: let's talk about your invoicing to see what can be made reliable in your business.
