VAT Calculation: Included or Excluded?

"VAT included" and "VAT excluded" prices look similar but give different results, since one strips the tax out of a total and the other adds it on top of a net amount. Mixing the two up leads to the wrong figure on an invoice.

Summary

Step by step

First work out whether the amount you have is net (VAT excluded) or gross (VAT included).
Going from net to gross means adding the rate; going from gross to net means removing it. They're different formulas.
If you're issuing an invoice, remember the VAT rate can vary by product or service category (some items fall under 1% or 10%).
Check the result against rounding rules; small differences can add up across a batch of invoices.

Where you see each kind of price

Shelf tags, supermarket receipts and prices shown to consumers in online shops are usually VAT included. That is the amount you actually pay. Business-to-business quotes, wholesale price lists and freelancer rates are more often given VAT excluded, with tax added on the invoice. Knowing the context a price was given in tells you most of what you need about which direction to calculate. In Turkey you will see these written as KDV dahil (included) and KDV hariç (excluded).

Two formulas, two directions

Net to gross: net × (1 + rate). At 20%, a net amount of 500 becomes 600.
Gross to net: total / (1 + rate). A total of 600 at 20% comes back to 500.
Just the tax portion: total × rate / (1 + rate). For 600, that is 100.

Write the rate as a decimal in these formulas, so 20% is 0.20.

Why it matters

If you issue the invoice, VAT is not your income. It is money you collect and pass on to the tax office. Price something in your head as VAT included but invoice it as if it were excluded, and you pay the tax out of your own margin. On the buying side, treating an excluded quote as included means the invoice arrives higher than you budgeted for.

An example

Say you are a freelance designer and you tell a client a logo will cost 10,000. The client hears that as the total they will pay. If you then invoice 10,000 net plus VAT, they get a bigger bill than expected. If you invoice 10,000 VAT included instead, your own net income drops. Writing "excl. VAT" or "incl. VAT" next to every number in a quote avoids the whole conversation.

Common mistakes

Leaving VAT status out of quotes and contracts entirely.
Updating a price list but keeping VAT-included prices that were calculated at an old rate.
Quoting a VAT-included price to a customer and then booking the full amount as net revenue.
Passing on exchange-rate differences or extra costs without checking whether they belong in the VAT base.

When to ask a professional

Which rate applies to which product or service, and whether an exemption or withholding applies, depends on current legislation and can change. Check current rates on the tax authority's official site (GİB in Turkey) and ask your accountant before issuing an invoice you are unsure about.