VAT Calculator

What Is VAT?

Value Added Tax (VAT) is a consumption tax placed on goods and services at each stage of the supply chain where value is added. Unlike sales tax which is collected only at the point of final sale, VAT is collected incrementally, with businesses reclaiming the VAT they've paid on inputs.

VAT Rates Around the World

VAT rates vary significantly globally. Nigeria charges 7.5%, the UK applies 20% standard rate, most EU countries range from 17-27%, while some countries like the US don't have a federal VAT at all (using sales tax instead). Understanding local VAT rates is essential for pricing, invoicing, and compliance.

Nigerian VAT History

Nigeria introduced VAT in 1993 at 5%, replacing the old sales tax. The rate remained unchanged for 27 years until the Finance Act 2020 increased it to 7.5% effective February 1, 2020. Certain items remain VAT-exempt including basic food items, medical supplies, educational materials, and exported goods.

Adding vs Removing VAT

Adding VAT is straightforward: multiply the net price by (1 + rate). Removing VAT requires dividing the gross price by (1 + rate). A common mistake is simply subtracting the percentage — for 20% VAT on £120 gross, the VAT is £20 (not £24), because £120 ÷ 1.20 = £100 net.

VAT Registration

Businesses must register for VAT when their taxable turnover exceeds the registration threshold. In the UK, this is £90,000 (2024/25). In Nigeria, all businesses are required to register regardless of turnover. Registration brings obligations including charging VAT, filing returns, and keeping proper records.

Input vs Output VAT

Output VAT is what businesses charge on their sales. Input VAT is what they pay on their purchases. Businesses remit the difference: if output VAT exceeds input VAT, they pay the difference to the tax authority. If input exceeds output, they can claim a refund.